Standard 

Costing  Principles 


AND 

Practices 

FOR  THE 

PLYWOOD  INDUSTRY 


PUBLISHED  UNDER  THE  SUPERVISION 

OF  THE 

PLYWOOD  MANUFACTURERS 
ASSOCIATION 

1215  MONADNOCK  BLDG. 
CHICAGO 

FOR  THE  EXCLUSIVE  USE  OF  MEMBERS 
Revised  1922 


Copyright  1922  by  Plywood  Manufacturers  Association 
All  Rights  Reserved 


PRESS  OF  POWER8-TY80N  PTO.  CO. 
GRAND  RAPIDS,  MICH. 


(oSl 

P7Va/ 

General  Outline 
Revised  1922 


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PREFACE 

The  purpose  of  this  Text-Book  is  to  direct  and  s’ddc  members  of  the  National 
Veneer  and  Panel  Manufacturers  Association  in  the  compilation  of  their  costs. 

Following  the  general  plans  and  principles  laid  down  in  these  pages  will 
enable  each  member  to  arrive  at  cost  figures  on  any  and  all  articles  or  goods 
produced  that  will  be  comparable  with  the  costs  of  all  other  members  making 
similar  products. 

Total  computed  costs  can  vary  greatly  by  differences  in  methods  of  com- 
putation, so  that  members  whose  manufacturing  methods  may  be  identical  and 
whose  actual  costs  are  the  same,  arrive  at  entirely  different  results. 

To  avoid  these  discrepancies  in  cost  figuring  it  is  necessary  that  all  mem- 
bers adopt  similar  principles  for  determining  their  various  cost  factors. 

Only  by  knowing  costs  and  arriving  at  their  totals  through  similar  methods, 
can  unintelligent  pricing  and  dangerous  competition  be  eliminated. 

An  observance  of  the  Rules  and  Principles  set  forth  in  this  Guide  will  mean 
that  differences  in  costs,  obtained  by  different  members,  will  be  true  indications  of 
their  individual  abilities  to  produce  the  different  articles  of  their  respective  lines. 

The  figures  obtained  will  be  true  guides  as  to  what  goods  can  be  best  pro- 
duced by  different  members,  and  what,  if  any,  can  be  more  profitably  left  to 
other  manufacturers  whose  equipment,  location,  or  other  inherent  advantages 
may  be  especially  favorable. 

The  principles  and  rules  offered  are  such  as  can  be  adopted  by  members 
whose  bookkeeping  and  accounting  facilities  are  necessarily  limited,  as  well 
as  by  firms  maintaining  elaborate  systems  for  cost  determination. 

The  first  section  lays  the  foundation  by  giving  a general  outline  of  the 
principles  of  costing  and  a graphical  chart  of  Cost  Analysis.  The  second  subject 
covers  a detailed  exposition  of  the  element  of  Expense  and  its  distribution  to 
product.  The  section  on  Material  treats  of  methods  of  pricing  and  waste 
determination;  and  the  treatment  of  Labor  includes  the  methods  for  computation 
best  suited  to  the  industry.  Section  V treats  specifically  of  the  relation  of  the 
general  accounts  to  cost-keeping  and  the  practical  co-ordination  of  same. 
Other  sections  added  from  time  to  time  will  treat  specific  phases  of  cost  finding. 

Especial  acknowledgment  is  here  made  of  the  helpful  counsel  and  con- 
structive criticisms  of  Mr!  W.  L.  Churchill  in  the  preparation  of  the  text.  To 
him  a large  measure  of  the  credit  for  any  accomplishment  is  due. 

H.  D.  Potter, 

Cost  Engineer, 

Plywood  Manufacturers  Association. 


(V 

N. 

V 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


4 


KNOW  COSTS 


General  Outline 
Revised  1922 


IMPORTANCE  OF  THE  PROPER  KNOWLEDGE  OF  COSTS 

Someone  has  said  that  “Knowledge  is  Power.”  A prominent  cost  engineer 
has  paraphrased  this  quotation  in  its  application  to  industry  to  read,  “Knowledge 
is  Safety.”  Certainly  the  foundation  of  safety  must  be  laid  before  the  super- 
structure of  power  is  raised.  It  is  estimated  that  eighty  per  cent  of  business 
failures  are  owing  to  faults  or  incompetence  of  one  kind  or  another,  and  it  is 
safe  to  assume  that  a large  proportion  belongs  in  the  category  of  those  who  have 
not  correctly  counted  the  cost — or,  perhaps  more  particularly,  have  not  counted 
all  the  cost. 

Most  industries  are  established  for  the  sole  purpose  of  making  money; 
that  is  to  conduct  their  business  so  that  the  receipts  will  exceed  the  disburse- 
ments. In  manufacturing,  there  is  but  one  source  of  revenue;  namely,  the  sale 
of  product.  On  the  other  hand,  items  of  cost  are  legion.  Many  of  them  are 
easily  identified,  accounted,  and  allocated  to  product.  Others  may  not  an- 
nounce themselves  until  years  of  supposedly  successful  operation  shall  have 
passed,  when  the  failure  to  have  anticipated  them  may  prove  disastrous. 

It  is  essential  to  the  success  of  any  manufacturing  enterprise  that  all  items 
of  cost  be  assembled  within  the  limits  of  the  selling  price  of  its  product.  As 
hinted  above,  some  of  them  may  be  the  growth  of  years  and  not  be  felt  until 
the  end  of  the  period,  but  they  are  nevertheless  very  real  factors  and  must  be 
dealt  with  accordingly. 

It  is  true  that  correct  bookkeeping  will  show  whether  a business  is  being 
operated  at  a profit,  and  it  has  been  argued  that,  as  a periodical  financial  state- 
ment will  show  whether  a concern  is  making  money,  a cost  system  is  unneces- 
sary. In  the  case  of  a small  enterprise  engaged  in  the  manufacture  of  one  product 
as  for  example  artificial  ice  or  common  brick,  the  above  argument  might  hold, 
although  even  in  such  cases  a check  on  departmental  costs  would  tend  to  control 
waste  and  promote  efficiency.  In  industries  of  a more  complex  nature,  how- 
ever, it  is  not  only  essential  to  the  most  economical  conduct  of  the  business  to 
know  the  actual  amount  of  each  factor  of  cost,  but  imperative  also  to  know  the 
proportion  of  each  of  these  factors  absorbed  by  each  product  manufactured. 
It  has  been  frequently  demonstrated  in  actual  practice  that  without  proper  cost 
accounting  it  is  possible  and  even  not  improbable  that  some  one  or  more  classes 
or  articles  be  unwittingly  made  at  a loss.  Examples  of  this  could  be  cited  in  the 
Plywood  industry  and  even  in  our  own  Association. 

The  concern  which  uses  efficient  costing  methods  has  a distinct  advantage 
over  its  competitor  who  relies  solely  on  experience  and  the  quotations  of  others 
for  its  price-setting  policy.  However,  the  too  common  tendency  of  the  latter 
class  to  get  business  by  meeting  competition  with  a shade  lower  price  reacts 
upon  the  former  by  forcing  down  the  market.  The  fact  that  his  ignorant  com- 
petitor may  not  long  survive  does  not  add  to  his  potential  advantage,  as  the 
woods  are  always  full  of  those  ready  to  experiment  at  the  expense  of  the  whole 
industry.  The  story  is  told  of  a manufacturer  who  offered  to  send  his  expert 
accountant  at  his  own  expense  to  teach  his  competitor  correct  cost  finding,  and 
the  comment  is  made  that  he  was  a man  of  keen  business  ability  and  not  simply 
a philanthropist. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


General  Outline 
Revised  1922 


PURPOSE  AND  AIM 


5 


PURPOSE  AND  AIM 

The  function  of  any  efficient  cost  system  should  be  two-fold:  First,  to  es- 
tablish correct  costs  as  a basis  for  price  setting.  Second,  to  portray  manufactur- 
ing conditions  clearly.  It  may  also  be  so  designed  as  to  promote  efficiency  and 
to  form  the  basis  for  production  planning. 

While  cost  accounting  may  be  regarded  as  closely  allied  to  general  account- 
ing, it  is  not  necessarily  a part  of  the  general  accounting  system  and  tied  into  the 
books  although  this  is  both  feasible  and  desirable.  It  differs,  however,  in  that 
general  accounts  give  a record  of  actual  transactions  with  the  exact  amounts 
involved  while  the  former  should  be  the  result  of  an  analysis  of  these  transactions 
giving  the  proper  distribution  of  expenditures  to  product.  Owing  to  the  im- 
possibility of  anticipating  with  mathematical  precision  the  budget  of  expendi- 
tures or  the  amount  of  labor  hours,  sales  or  other  units  used  as  a basis  for  distri- 
bution to  product,  it  is  not  possible  to  exactly  balance  cost  accounts  with  general 
accounts;  but  it  may  be  done  with  a degree  of  accuracy  sufficient  for  all  prac- 
tical purposes,  and  at  the  same  time  insure  the  inclusion  of  all  items  of  cost, 
both  current  and  accruing,  in  correct  proportions,  the  general  accounts  acting 
as  a check  against  errors. 

In  designing  any  cost  system,  the  service  required  of  it  and  the  form  of  cost 
wanted  should  be  kept  constantly  in  mind.  A system  may  be  devised  to  show 
costs  by  departments,  by  classes  of  products,  by  individual  jobs,  by  the  square 
foot  or  by  the  piece.  It  may  be  planned  to  give  collective  costs  after  completion 
or  it  may  predetermine  costs  and  set  standards  of  efficiency.  After  this  ques- 
tion has  been  answered,  the  problem  is  to  provide  the  simplest  possible  machin- 
ery for  attaining  the  desired  end.  There  are  many  headstones  erected  to  the 
memory  of  “systems,”  beautiful  in  detail  and  design,  but  which  were  like  the 
whistle  of  Lincoln’s  steamboat — it  took  all  the  steam  to  blow  the  whistle.  The 
fine  deductions  which  may  be  made  from  some  cost  records  are  very  interesting 
but  unless  they  may  be  made  practical  use  of  and  pay  their  way,  they  are  super- 
ficial luxuries.  *“When  the  cost  of  effort  approximates  the  value  of  result  it 
is  unprofitable  to  go  further.” 

* “Fundamentals  of  Cost  and  Prodt  Calculations”  by  Robt.  S.  Denham. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


6 


COST  divisions 


General  Outline 
Revised  1922 


DIVISIONS  OF  COSTS 

The  operation  of  any  efficient  costing  method  involves  analysis  of  the  dif- 
ferent items  of  expenditure  shown  by  the  general  accounts  and  a logical  appor- 
tionment of  same  to  product.  They  fall  into  three  natural  and  distinct  groups 
as  graphically  illustrated  below;  the  proportions  shown  being  approximately 
correct  as  applied  to  Plywood  manufacturing. 


< Cost > 


Expense 

Material 

Labor 

Profit 

< 

The  order  of  expenditure  is  that  shown,  Expense  having  to  be  incurred  be- 
fore a foot  of  Material  is  purchased  or  a hand  raised  by  Labor.  Each  of  these 
three  divisions  has  in  turn  its  own  component  factors  and  reference  is  made  to 
the  chart  between  pages  G and  7,  showing  graphically  the  whole  structure  of 
Cost.  The  elements  of  Cost  are  also  given  in  tabular  form  on  pages  10  to  12. 

EXPENSE 

The  Expense  (or  Overhead)  factor  of  costs  is  the  element  of  greatest  varia- 
tion in  interpretation  and  application  to  total  costs. 

It  has  three  main  sub-divisions;  Manufacturing  Expense,  Administration 
Expense  and  Selling  Expense. 

Manufacturing  Expense 

Briefly,  under  Manufacturing  Expense  will  be  found  sub-divisions  pertain- 
ing to  Rent,  Equipment  Expense,  Steam  Generation,  Power  and  General. 

Rental  Expense  covers  all  items  of  cost  pertaining  to  the  hiring  or  own- 
ing of  the  land  and  buildings,  and,  in  the  case  of  owned  property,  includes  Taxes, 
Depreciation,  Repairs,  Insurance  and  Interest  on  Investment  in  land  and  build- 
ings. 

Equipment  Expense  covers  the  charges  for  Depreciation,  Repairs,  Taxes 
and  Insurance  on  the  machinery  and  other  equipment. 

Steam  Generation  Expense  covers  all  items  of  cost  pertaining  to  the 
generation,  and  distribution  of  Steam  Heat.  It  includes  the  rental  charges 
against  the  property  occupied  by  the  Steam  Plant,  all  expenditure  for  Fuel  and 
Supplies  used  for  these  purposes,  and  Depreciation,  Repairs,  Taxes  and  In- 
surance on  the  Steam  Plant  investment. 

Power  charges  cover  cost  of  Steam  for  generating,  or  cost  of  purchased 
power;  equipment  charges  against  Power  Equipment, and  Power  Plant  supplies. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Digitized  by  the  Internet  Archive 
in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


https://archive.org/details/standardcostingpOOplyw 


MATERIAL 

LOGS 

lumber  , 

VENEERS 

CLUE 

TEtPE 

POKING 

MRTERm 


LABOR 

GEHEHOl. 

INPIEBCT 

LOBOZ 

(PRORATEP  TO ) 
\ peportmehts) 


PtlLLh/RfONTS 

MECMAMICS 

eLEYATOR 

OPERATORS 
TRUCK  PRIYERS 
EJiOlHEERS 
PIREMEK 
WATCHMEN 
SWEEPERS 

(see  dept,  labor 

FOR  PEPARTMEHTAL 

indirect  and 

DIRECT  labor) 


MAINTENANCE 

RENT  OF  REPAIR 
SHOP 

DEPRECIATION 
REPAIRS 


TAXES 

REAL  AND 

PERSONAL  TAXES 
(SEE’ADMimSTMTIVE 
EXPENSE*  FOR 
OTHER  taxes) 


INSUR/\NCE 

FIRE  rORNAOO 
SPRINKLER  LEAKAOE 
IHTERESr  OK  IKYCSTMCNT 
IK SPRJHKLER  system 
(SEE  steam’  AHD 
'ADMIHISTRUr/YB  UPEHSEY 


y ^ 

\ — / 

RENT 

eSHT  PAIO 

IKTEREST  OK  IKYESTMEKT 
tM  LAND  AHD  BIKLDIHSS 
MAJHTEHAHCE 
TAXES  /HSURAHCE 


EQUIPMENT  EXP. 

MAINTEHAHCe 

TAXES 

INSURANCE 


MANUFAC 


/ \H 


STEAM 

RENTAL  CHARCE 
EQUIPMENT  CKARGE 
FUEL  FURCHA5E0 
REFUSE  BURNED 
BOILER  INSURANCE 
NATER  FOR  BOILERS 


DC 


HEAT^  LIGHT 

PURCHASeO  CURRENT 
■ EQUIPMENT  CNAROE 
-STEAM  6ENERAT/0N 
I CHAROE 
^ POWER  CHAR6E 


POWER 

RENTAL  CHAR6* 
EQUIPMENT  CHARGE 
PURCNASEO  POWER 
STEAM  GENERATIOH  CHARGE 
[ POWER  PLANT  SUPPLIES 


3 


f 


GENERAL  EXP. 

/tBMTAL  CHAACe 
eOUIPMEMT  CHAROE 
Hor/RR  CHHROe 
HEAT  AHD  LIGHT  CHARGE 
r/ME  A COST  DEPT.  SUPPLIES 
GENERAL  PPCTORr  SUPPLIES 
SALARIES  FOR  SUPERINTEMDEHCE 
» TIME  S COST  DEPT. 


URING  EXPENSE 


DEPT.  EXPENSE 

/HSURAHCE  OH  lumber 
HEAT  FOR  K/LNS 
OBPT.  SUPPLIES 


I 


DEPT.  EXPENSE 

DEPT.  .SUPPLIES 


I 


DEPT.  EXPENSE 

DEPT.  SUPPLIES 


DEPT  LABOR 

INDIRECT,  DIRECT 


rOEPT.  LABOR 

1 INDIRECT,  DIRECT 


X 


t: 


j. 


DEPT.  EXPENSE 

DRAYPGE  EXPENSE 
PEP7.  SUPPLIES 


G 


I — 

DEPT,  LABOR. 


INDIRECT,  DIRECT 


I 


DEPT 

INDIRECT 

LABOR 

DIRBCT 

1 

T 


r. 


T 


] 


CONVERSION  OR  MANUFACTURING  COSTI 


ADMIN- 

ISTRA- 

TIVE 

EXPENSE 


OFF/Ci  NBNT 
OFFICE  EQUIFNINT  cue. 
OFFICE  HEAT  blight 
CORFORffTlOH  TAX 
CAPITAL  STOCK  TAX 
USt  AOCCUFANcr  INS. 
PAYWLL  INSURANCE 
'FORGERY  INSURANCE 
LIABILITY  INSURANCE 
EXECUTIYE  LIFE  INS. 
EXEC.  S OFFICE  SALARIES 

PON  AT  ms 

MISC.  THMELUe  EXPEIBE 
DISCOUNT  ON  SALES 
/NTERESr  B DISCOUNT 
COLLECTION  A AUPIT  EXP. 
LESRLAFROFESSWMRL  EXP. 
POSTAGE 

TEL  EPHOHl  A TELESmPN 
STATIONERY  A POSTAGE 
BAP  DEBTS 
CLUB  DUES 
SUNDRY  OFFICE  EXP. 
WELFARE  EXPENSE 


SALES 

EXPENSE 


SALARIES  OF 
SALES  FORCE 

COMMISSIONS  ON 
SALES 

SALESMENS 

EXPENSES 

ADVERTISING 

catalogs 


PHOTOGRAPHS 

SAMPLE 

EXPENSE 

SALES 

allowances 

SALES  POSTAGE 

SALES  TELEPHOHE 
\tANP  TELEGRAPH 


, I 

1 1 

— j — 

COST 1 ’ 

^ . 

1 T"  0 T"  1 

1-  1 

COST 


AM  A L.  'T  a 1 3 OF 
P L V W C 
COS 


ICOWyERSlOK  COST  t 


ARRANGED  BY 
COST  ENGINEER , PLYWOOD  Ff, 


I 

M.  D.  F 
</UFACTlLk, 


rr 

1 r/KCTORY 

C OST  1 

5ALe5  EXPENSE 

IrTER. 

KERB  association 

Cx: 

0 T"  L_ 

C 0 3 T 1 

V 

General  Outlxne 
Revised  1922 


COST  DIVISIONS 


7 


Manufacturing  Expense  (Continued; 

General  Manufacturing  Expense  includes  all  expenses  of  a miscellaneous 
character  not  directly  assignable  to  any  of  the  foregoing.  Any  such  as  are  spe- 
cifically chargeable  to  a department  or  product  are  so  distributed. 

Administrative  Expense 

Administrative  Expense  has  to  do  with  those  items  not  chargeable ’to  manu- 
facturing, but  for  which  the  general  management  is  responsible,  although  it  may 
be  distributed  on  a basis  that  parallels  labor  costs. 

Selling  Expense 

Selling  Expense  comprises  those  expenditures  incident  to  the  marketing 
of  product,  any  may  be  apportioned  according  to  the  value  of  Sales,  Man-hours 
of  Direct  Labor  represented,  or  on  some  more  arbitrary  basis  according  to 
conditions. 

The  differences  in  these  classifications  of  Expense  and  advantages  through 
segregation  are  covered  more  fully  in  Section  II  devoted  to  “Expense,”  and  the 
elements  of  these  factors  are  also  more  fully  explained  therein. 

MATERIAL 

Materials  constitute  the  largest  single  factor  of  costs  in  practically  all 
products  of  the  Plywood  Industry.  In  many  products  of  this  industry  the 
lumber,  veneers,  tape,  glue,  etc.,  aggregate  more  than  two-thirds  of  the  total  costs . 

Variations  in  principles  used  in  valuing  the  lumber,  veneers,  etc.,  entering 
into  the  different  products  of  members  can  and  do  distort  their  total  costs  out 
of  all  proportion  to  the  actual  variation  in  such  costs.  This  factor  being  such 
a large  proportion  of  total  costs,  variations  of  but  a small  per  cent  affect  the 
total  cost  much  more  than  similar  variations  in  cost  of  Labor  or  Expense. 

Material  costs  in  Plywood  manufacturing  offer  many  complex  problems  to 
solve,  and  without  common  agreement  on  the  proper  principles  to  use  in  pricing 
such  materials,  wide  variations  in  selling  prices  of  similar  articles  are  inevitable, 
even  though  there  may  be  no  actual  difference  in  their  costs. 

In  the  manufacture  of  Plywood  products  there  are  many  opportunities  for 
utilizing  lumber,  veneers,  etc.,  unsuited  for  certain  articles,  as  material  for  other 
articles.  Material  that  might  otherwise  be  wasted  is  thus  converted  into  mer- 
chandise. 

Pricing  properly  the  material  derived  from  a single  source,  and  used  for 
various  grades  of  the  same  article  or  for  distinctively  different  products,  is  a 
problem  that  must  be  solved  on  the  basis  of  a common  agreement,  in  order 
that  the  industry  as  a whole  may  not  suffer  from  price-cutting  and  reprisals 
due  to  the  different  methods  of  arriving  at  values  of  materials  used  in  such 
various  products. 

Section  III,  devoted  to  the  subject  of  Costing  Materials,  covers  this  phase 
of  pricing  materials  and  explains  in  more  detail  the  logic  and  reasoning  for  using 
current  market  prices  of  materials  in  making  up  costs  instead  of  actual  purchase 
price,  or  average  purchase  prices. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


8 


COST  DIVISIONS 


General  Outlini 
Revised  1922 


Tlie  principles  agreed  upon  as  sound  and  representing  true  material  costs 
are  as  follows: 

1st:  Logs,  Lumber,  Veneers  and  other  materials  used,  should  be  figured 
into  costs  at  the  market  value  of  such  materials  at  time  of  billing  to 
customer. 

2nd:  Choice  selected  portions  of  Logs,  Lumber,  Veneers,  etc.,  should  bo 
priced  at  higher  than  the  current  market  prices  for  average  or  log  run 
materials,  and  the  droppings,  rejects,  offal,  etc.,  should  bear  cor- 
respondingly lesser  values  in  the  cost  of  the  products  made  from  such 
seconds,  etc. 

(Note:  Rules  for  guidance  in  this  variation  pricing  will  be  found  in  the 
Material  Costing  section.) 

The  reasons  for  using  market  prices  are  numerous,  but  chiefly  that  such 
prices  are  the  only  prices  that  are  comparable  among  members  and  that  the 
customers  will  not  pay  the  purchase  prices  on  a decline  in  market  values. 

This  feature  of  costing  materials  as  per  market  values  offers  certain  account- 
ing problems  that  not  all  members  are  prepared  to  handle,  and  for  the  benefit 
of  such  the  Accounting  section  will  explain  how  this  can  be  simply  and  thorough- 
ly cared  for  without  complicated  bookkeeping  systems. 

Material  Wastes  are  also  more  thoroughly  covered  in  the  Material  Costing 
section.  As  this  is  the  largest  single  controlable  cost  element  care  must  be 
exercised  by  all  members  to  insure  that  all  wastes  are  included  in  their  costs. 

Members  whose  product  varies  greatly  in  sizes  should  not  use  an  average 
waste  to  cover  the  final  trimming  of  tops,  panels,  etc.,  as  such  averages  do  not 
allow  sufficient  for  small  articles  and  penalize  the  larger  ones. 

Thus  if  a member  making  panels  as  small  as  12"xl2"  and  as  large  as  48"x 
60",  and  in  both  instances  makes  these  panels  1"  larger  each  way,  he  will.  In 
the  12"xl2",  have  over  17.3%  more  material  in  the  unfinished  than  in  the  fiin 
ished  panel.  In  the  larger  panel  the  extra  material  will  be  less  than  4%  of  the 
finished  panel.  Using  an  average  waste  of  say  8%  would  be  putting  too  high 
a cost  on  the  large  panel  and  too  low  on  the  small  one.  Where  products  do  not 
vary  much  in  size  this  detail  is  of  less  importance,  but  all  will  profit  by  figuring 
waste  as  actually  produced,  rather  than  by  general  averages. 

There  is  a wide  variation  in  the  ratio  of  wastes  in  different  kinds  and  grades 
of  the  same  kinds  of  logs,  lumbers  and  veneers,  and  the  practice  of  averaging  all 
kinds,  or  all  grades  of  a kind — unless  actual  tests  indicate  that  they  are  the  same 
— is  very  misleading  and  dangerous. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


General  Ootline 
Revised  1922 


COST  DIVISIONS 


9 


LABOR 

Labor  Costs  are  the  most  troublesome  to  accurately  allocate  to  different 
products  where  these  may  be  varied  in  nature,  grades,  sizes,  etc. 

Section  IV  on  determining  Labor  Costs,  covers  the  complex  problems  of 
determining  labor  costs  against  the  different  varieties  or  articles  made  simul- 
taneously from  a common  lot  of  logs,  lumber,  veneers,  etc.,  and  indicates  methods 
for  arriving  at  labor  costs  of  the  more  difficult  nature,  as  well  as  simpler  direct 
operations. 

The  determination  and  segregation  of  general  indirect  labor  to  the  various 
products  in  proper  proportion  are  also  exemplified,  and  methods  of  obtaining 
total  labor  costs  by  members,  who  may  not  feel  justified  in  collecting  detailed 
labor  costs  on  all  products  as  produced,  are  explained  more  fully  in  the  chapter 
on  Labor  Costs. 

It  is  important  that  the  total  of  all  labor  chargeable  to  each  product  be  fully 
ascertained,  not  only  because  of  the  importance  of  this  element  of  costs,  but 
also  because  it  has  been  agreed  that  Expense  should  be  distributed  on  a basis 
that  parallels  the  labor  cost  of  all  products,  and  any  error  or  omission  in  the 
determination  of  total  labor  costs  is  multiplied  in  amount,  by  its  effect  on  the 
Expense  element  of  Cost.  For  example,  if  Expense  averages  100%  on  labor,  an 
error  of  10%  in  calculating  labor  cost  becomes  twice  as  great  when  the  Ex- 
pense is  appled. 

To  insure  against  errors  in  labor  cost  calculations  as  a whole,  accounting  safe- 
guards of  a simple  nature  can  and  should  be  used,  and  for  such  members  as  have 
not  already  cared  for  this  detail,  the  section  on  Accounting  will  point  out  methods 
by  which  this  may  be  accomplished  without  undue  red  tape  or  involved  book- 
keeping systems. 


ACCOUNTING 

The  proper  balancing  of  Costs  with  the  general  bookkeeping  procedure  is 
a very  important  one  if  costs  are  to  be  used  as  a safe  guide  in  the  pricing  and 
selling  of  products. 

The  many  differing  conditions  and  classes  of  product  of  the  Association 
Members  make  it  expedient  to  offer  suggestions  covering  the  fundamentals  of 
uniform  accounting  practices  for  all  to  follow. 

In  Section  V,  given  over  to  this  subject,  the  essential  and  necessary  features 
are  covered,  leaving  to  individual  members  their  own  choice  of  specific  forms  and 
details. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  M AIN  UFACTURERS  ASSOCIATION 


10  COST  ANALYSIS  I. 


COST  ANALYSIS 

TOTAL  COST 

FACTORY  COST 
MATERIAL 
Lumber 
Veneers 
Glue 
Tape 

Packing  Materials 

CONVERSION  COST 
LABOR 

General  Indirect  Labor  (prorated  to  departments) 
Millwrights 
Mechanics 
Elevator  Operators 
Truck  Drivers 
Engineers 
Firemen 
Watchmen 
Sweepers 

Departmental  Labor 
Indirect 

Proration  of  General  Indirect  Labor 
Foremen 

Other  Departmental  Indirect  Labor 

Direct 

All  persons  handling  Materials 

MANUFACTURING  EXPENSE  (distributed  to  departments) 
Rental  Expense 
Rent  Paid 

Interest  on  Investment  in  Land  and  Buildings 

Maintenance 

Taxes 

Insurance 

Equipment  Expense 

Maintenance 

Taxes 

Insurance 


General  Outline 
Revised  1922 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


General  Outline 
Revised  1922 


COST  ANALYSIS 


11 


Manufacturing  Expense  (Continued) 

Power  Expense 

Purchased  Power 
Rental  Charge 
Equipment  Charge 
Steam  Generation  Charge 
Power  Plant  Supplies 


General  Manufacturing  Expense 
Rental  Charge 
Equipment  Charge 
Power  Charge 
Heat  and  Light  Charge 
General  Factory  Supplies 
Time  and  Cost  Department  Supplies 

Salaries  Covering  Superintendence,  Time  and  Cost  Departments. 

Maintenance 

Rental  charge  against  Repair  Shop 

Depreciation 

Repairs 

Replacements 


Taxes 

Real  and  Personal 


Insurance 

Fire 

Tornado 

Sprinkler  Leakage 

Charges  against  Sprinkler  System 


Steam  Generation 
Rental  Charge 
Equipment  Charge 
Boiler  Insurance 
Fuel  Purchased 
Fuel  Value  of  Refuse  Burned 
Water  for  Boilers 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


12 


COST  ANALYSIS 


T General  Outline 
Revised  1922 


Manufacturing  Expense  (Continued) 

Heat  and  Light 

Purchased  Current 
Equipment  Charge 
Steam  Generation  Charge 
Power  Charge 

ADMINISTRATIVE  EXPENSE 

Office  Rental  Charge 
Office  Equipment  Charge 
Office  Heat  and  Light  Charge 
Corporation  Taxes 
Capital  Stock  Taxes 
Use  and  Occupancy  Insurance 
Payroll  Insurance 
Forgery  Insurance 
Liability  Insurance 
Executive  Life  Insurance 
Executive  and  Office  Salaries 
Donations 

Miscellaneous  Traveling  Expense 
Discounts  on  Sales 
Interest  and  Discount 
Collection  and  Credit  Expense 
Legal  and  Professional  Services 
Postage,  Telephone  and  Telegraph 
Stationery  and  Printing 
Bad  Debts 

Association  and  Club  Dues 
Welfare  Expense 
Sundry  Office  Expense 

SALES  EXPENSE 

Salaries  of  Sales  Force 
Commissions  on  Sales 
Salesmen’s  Expenses 
Advertising 
Catalogs 
Photographs 
Sample  Expense 
Storage  Rental  Charge 
Sales  Allowances 
Sales  Postage 

Sales  Telephone  and  Telegraph 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


IL 


Expense 
Revised  1922 


EX  PENSE 


13 


EXPENSE  * 

The  three  major  divisions  into  which  costs  naturally  fall  are  Expense, 
Material  and  Labor. 

This  section  is  devoted  to  the  factor  of  Expense  Costs,  as  it  is  the  one  factor 
subject  to  the  greatest  variation  in  interpretation  and  distribution  to  the  different 
products  of  members;  therefore  it  is  the  one  factor  causing  the  greatest  varia- 
tions in  the  total  costs  and  in  selling  prices  as  determined  by  different  members 
of  the  industry. 

What  constitutes  Expense  Costs?  This  is  an  important  question  and  one 
that  should  be  answered  uniformly  by  all  members.  If  this  is  not  done,  differ- 
ent members  will  be  including  in  their  Expense,  or  overhead,  different  cost 
elements  and  thereby  reach  different  conclusions  even  if  the  actual  operations 
and  costs  are  identical. 

For  the  present  it  will  suffice  to  say  that  the  subject  of  Expense  falls  into 
three  natural  divisions,  namely.  Manufacturing  Expense,  Administrative  Ex- 
pense and  Sales  Expense,  each  of  which  will  be  treated  fully  under  the  respective 
headings. 


DISTRIBUTION  OF  EXPENSE  TO  PRODUCT 

Time  governs  the  volume  of  all  expenses.  Personal  service  are  renumer- 
ated at  a stipulated  rate  per  week  or  month.  Rent,  Interest,  Taxes  and  Insur- 
ance are  all  paid  for  on  the  basis  of  time.  As  time  passes,  buildings  and  equip- 
ment depreciate  and  require  repairs.  The  amount  of  power  required  in  the 
operation  of  machinery  is  in  direct  ratio  to  the  time  it  is  in  use.  If  it  costs  fifty 
cents  to  operate  a machine  for  one  hour,  it  may  logically  be  assumed  to  cost  twice 
that  for  two  hours.  Therefore  all  methods  for  the  distribution  of  Expense  to 
product  have  time  as  their  basis. 

Three  mediums  for  this  purpose  are  commonly  in  use  among  manufacturers, 
namely  the  Machine-Hour  Rate,  the  Percentage  Rate  and  the  Man-Hour  Rate. 

The  Machine-Hour  Rate  is  made  up  of  all  expenses  incident  to  the  op- 
eration of  a machine  such  as  Depreciation,  Repairs,  Insurance  and  its  propor- 
tion of  Taxes,  Power  and  General  Expense  reduced  to  a cost  per  hour.  This  will 
vary,  of  course,  with  different  machines,  some  requiring  more  Repairs,  Power, 
etc.  than  others  and  for  this  reason  requiring  a separate  account  with  each  mach- 
ine. The  Machine-Hour  Rate  is  desirable  only  in  manufacturing  where  the 
product  is  varied,  and  different  articles  are  passed  through  some,  but  not  all, 
of  the  machines  used  by  others,  and  therefore  requiring  that  the  expense  of  opera- 
tion of  each  machine  be  considered  separately. 

♦ n is  suggested  to  the  reader  that  a clearer  uuderstanding  of  the  text  may  be  had  by  frequent  reference  to 
the  graphic  chart  shown  between  pages  6 and  7 of  Section  I,  and  the  example  of  “Determination  of  Differential 
Expense  Rates”  on  pages  27  to  42. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


14 


DISTRIBUTION 


Expense 
• Revised  1922 


In  the  Plywood  Industry  this  is  rarely  the  case,  no  machines  or  equipment 
used  for  one  product  being  used  for  another,  each  product  having  its  own  partic- 
ular equipment  and  machines.  For  this  reason,  all  machines  used  in  the  man- 
ufacture of  Veneers,  for  instance,  may  be  treated  as  one  unit,  those  used  in 
making  Cores  as  another,  and  those  for  Plywood  assembling  and  finishing  as  an- 
other. On  the  whole,  the  clerical  work  involved  in  using  the  Machine-Hour 
method  of  charging  e.xpense  is  not  justified  by  results  in  this  industry  and 
therefore  it  is  not  recommended. 

The  Percentage  Rate  is  arrived  at  by  comparison  of  total  Expense  to  the 
Direct  Labor  payroll.  For  instance,  if  the  total  conversion  cost  were  $312,500.00 
of  which  $187,500.00  is  expense,  and  the  Direct  Labor  payroll  $125,000.00,  the 
Expense  or  Overhead  is  said  to  be  gjas'orooo  150%. 

The  Man-Hour  Rate  is  obtained  by  dividing  the  Expense  by  the  Man- 
Hours  of  Labor.  (By  Man-Hours  is  meant  total  hours  of  labor  represented. 
Thus  if  twm  men  worked  on  a job,  one  ten  hours  and  the  other  eight,  the  number 
of  Man-Hours  would  be  18.)  In  the  example  just  citied  if  the  plant  employs 
100  men  at  2,500  hours  each,  annually,  the  Man-Hours  of  Labor  will  be  250,000 
and  the  rate  aso^oohm-h  10.75  per  Man-Hour. 

In  the  Plywood  Industry,  the  Man-Hour  Rate  for  distributing  Expense 
is  found  to  be  the  most  logical  and  practical.  Many  manufacturers,  however, 
use  the  Percentage  Rate  thinking  the  results  are  the  same.  To  show  that  this 
is  not  true  the  following  illustration  is  given. 

We  will  assume  that  for  a certain  operation,  “A”  requires  one  hour  of  labor 
and  that  his  wage  is  $0.60  per  hour.  “B”  requires  two  hours  to  do  the  same  work, 
and  being  less  proficient  receives  only  $0.35  per  hour.  Using  the  Expense  Rates 
previously  quoted,  the  result  is  as  follows: 


Percentage  Basis. 

“A”  “B” 

Labor,  1 hour  @ $0.60  Labor,  2 hours  @ $0.35  $0.70 

Expense,  150%  .90  Expense,  150%  1.05 


Totals  $1.50  $1.75 

Difference  $0.25 

Man-hour  Basis. 

“A”  “B” 

Labor,  1 hour  @ $0.60  Labor,  2 hours  @ $0.35  $0.70 

Expense,  1 hr.  @ .75  Expense,  2 hours  @ .75  1.50 


Totals  $1.35  $2.20 

Difference  $0.85 


It  will  be  noted  that  by  using  the  Percentage  Rate  on  wages,  a difference 
of  $0.25  is  shown  by  the  records  in  the  cost  of  the  job  done  by  the  respective 
workmen,  while  the  Man-Hour  method  proves  that  the  operation  really  costs 
$0.85  more  when  performed  by  “B”  than  by  “A”.  This  example  also  illustrates 
the  costliness  of  “cheap”  labor. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


11. 


Expense 
Revised  1922 


OPERATING  CONDITIONS 


15 


Just  here  somthing  should  be  said  regarding  the  interpretation  of  the  term 
“Labor.” 

What  is  meant  by  Labor?  Here  again  we  find  much  diversity  in  interpre- 
tation as  some  members  include  only  the  direct  or  so-called  “productive”  labor 
which  in  turn  is  subject  to  various  interpretations. 

This  is  treated  more  fully  in  Section  IV  devoted  to  the  subject  of  Labor, 
but  it  should  be  noted  here  that  all  Indirect  Labor  should  be  included  with  Labor 
and  not  treated  as  Expense. 


OPERATING  CONDITIONS  AND  EXPENSE  RATES 

The  law  of  supply  and  demand  and  its  resulting  effects  upon  merchandising 
reflect  comparatively  little  change  in  Overhead  Expense.  While  the  amount 
of  output  may  vary,  the  charges  for  Interest  on  Investment,  Depreciation, 
Repairs,  Taxes,  Insurance,  Salaries,  etc.  go  on  practically  in  unchanging  volume. 
When  a declining  market  produces  shrunken  volume,  an  increase  in  expense 
per  unit  results.  At  the  same  time  prices  shrink  and  the  shrinkage  is  practically 
all  in  the  profit,  although  the  cost  of  raw  material  may  decline  sufficiently  to 
offer  some  relief.  The  better  the  market,  the  greater  the  volume  and  propor- 
tion of  profit,  and  the  less  the  expense  per  unit.  The  poorer  the  demand,  the 
smaller  the  volume  and  profit,  and  the  greater  the  expense  per  unit.  When  there 
is  little  demand  for  a product  the  buying  public,  contrary  to  recognizing  in  a sub- 
stantial way  the  increased  expense  of  manufacture,  demands  a reduction  in 
price  as  an  inducement  to  purchase,  and  in  like  manner,  when  the  demand  is 
large,  is  willing  to  pay  a premium  for  delivery  in  spite  of  the  fact  that  the  product 
may  actually  cost  less.  This  being  the  case,  the  manufacturer  cannot  always 
base  his  selling  price  upon  actual,  immediate  costs,  but  must  decide  upon  some 
middle  ground  as  fairly  representing  normal  conditions  and  determine  his 
normal  costs  upon  them. 

It  is  esential  at  the  outset  to  determine  upon  a certain  volume  of  product 
and  the  corresponding  expense  budget,  hours  of  operation,  and  number  of  em- 
ployes as  being  representative  of  normal  production.  Figures  from  the  records 
of  abnor  aal  production  periods  would  result  in  too  low  a rate,  and  vice  versa, 
rates  based  upon  records  of  subnormal  times  would  be  too  high. 

Assuming  for  illustration  that  the  figures  previously  cited,  apply  to  operation 
of  the  plant  under  normal  conditions,  namely,  an  annual  Expense  budget  of 
$187,500.00,  and  a force  of  100  men,  each  working  2500  hours  a year  making 
250,000  man-hours;  it  will  give  a rate  of  or  $0.75  per  man-hour. 

If,  however,  business  should  greatly  increase  and  the  company  find  it  possible 
to  swell  its  volume  of  output  by  adding  30  men,  using  no  additional  equipment  or 
space  and  operating  the  same  number  of  hours,  the  ratio  of  man-hours  to  expense 
would  be  reduced  and  a rate  of  approximately  $0.60  per  man-hour  would  result. 
But  unless  the  demand  for  product  should  continue  unabated,  due  either  to  mar- 
ket conditions  or  ability  to  reduce  price  through  increased  output,  it  would  be 
unwise,  to  say  the  least,  to  use  $0.60  as  a normal  Expense  rate.  The  temporary 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


16 


OPERATING  CONDITIONS 


II. 


Expense 
Revisee  1922 


gain  of  $0.15  made  by  using  the  rate  of  $0.75  would  be  needed  to  compensate 
for  the  loss  when  the  demand  falls  off,  the  force  is  reduced  and  the  actual 
Expense  Rate  goes  up  to  $0.90  per  man-hour. 

Any  change  in  the  number  of  employees  produces  little  change  in  the  total 
expense,  where  the  operation  of  equipment  is  not  affected.  However,  there 
are  a few  items  dependent  entirely  upon  the  number  of  persons  employed, 
such  as  Liability  Insurance,  and  a few  others  partially  affected,  like  factory 
supplies,  which  closely  parallel  volume.  The  total  expense  affected  by  the 
number  of  persons  employed  only,  is  less  than  4%  of  the  whole,  and  may  be 
ignored;  a reduction  of  50%  in  a working  force  producing  less  than  2%  reduc- 
tion in  Expense. 

The  effect  of  volume  of  output  upon  expense  is  dependent  principally  upon 
the  hours  of  operation  of  the  plant.  There  are  certain  expenses  which  are  fixed — 
that  is  which  are  practically  unvarying  whether  the  plant  is  in  operation  or  not — 
and  others  which  closely  parallel  the  hours  of  operation.  The  following  tabu- 
lation gives  the  principal  items  of  expense  and  their  classification 


Fixed  Expenses 

Parallel  Expenses 

Rent 

Fuel 

Interest  on  Investment 

Purchased  Current 

Taxes 

Water  Rent 

Depreciation 

Factory  Supplies 

Property  Insurance 

Freight  on  Supplies 

Boiler  Insurance 

Equipment  Repairs 

Executive  Life  Insurance 

Cartage  Expense 

Sprinkler  Insurance 

*Bonuses  on  Salaries 

Credit  Insurance 

Welfare  Expense 

Building  Repairs 

Industrial  Life  Insurance 

Salaries  of  Executives 

Employers’  LiabiUty  Insurance 

Salaries  of  Clerks 

Discount  on  Sales 

Office  Supplies 

Plywood  Association  Dues 

Telephone  and  Telegraph 

Salesmen’s  Commissions 

Postage 

Sales  Allowances 

Adverl  ising 

Freight  and  Express  on  Sales 

Sundry  Office  Expense 

Legal  Expense 

Club  Dues 

Interest  and  Discount 

Traveling  Expense 

Bad  Debts 

Salesmen’s  Salaries 

Salesmen’s  Expense 

fA  careful  analysis  of  the  expenses  of  fourteen  representative  concerns, 
manufacturing  Plywood,  shows  that  the  Fixed  Expenses  are  52%  of  the  total 
and  the  expenses  which  parallel  hours  of  plant  operation,  48%.  A further 
analysis  shows  that  there  is  only  3%  variation  in  these  proportions  between 
those  who  manufacture  both  Veneers  and  Plywood,  and  those  who  make  Plywood 
only. 

* Bonuses  on  salaries  are  usually  based  upon  volume  or  profit.  Bonuses  on  wages  depend  upon  individual  or 
departmental  production  or  efficiency  and  are  therefore  treated  as  a part  of  wages,  and  included  in  Labor  Cost. 

tin  making  this  analysis,  costs  have  been  considered  as  f . o.  b.  factory  and  freight  and  express  on  sales  have  therefore 
been  omitted. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Expense 
• Revised  1922 


APPORTIONMENT 


17 


Therefore,  it  may  be  assumed  that  in  the  average  Plywood  plant,  a reduc- 
tion in  the  hours  of  operation  will  have  one-half  the  corresponding  effect  upon 
Expense;  a 50%  reduction  in  the  operating  hours  reducing  Expense  25%,  and  a 
shut-down  of  the  plant,  cutting  Expense  in  half.  However  there  is  considerable 
variation  in  the  proportions  of  the  two  classifications  of  Expense  among  mem- 
bers and  a careful  analysis  in  each  individual  case  should  be  made  before  assum- 
ing that  the  average  percentages  apply. 


IMPORTANCE  OF  PROPER  APPORTIONMENT 
OF  EXPENSE 

In  a manufacturing  business  where  more  than  one  class  of  articles  is  produced 
it  is  vitally  important  to  charge  each  class  with  its  just  share  of  costs.  Not- 
withstanding the  fact  that  in  the  Plywood  industry  the  cost  of  Expense  usually 
exceeds  the  cost  of  Labor,  it  is  common  practice  to  distribute  Expense  or  “Over- 
head” uniformly  over  all  products  while  it  would  be  thought  the  height  of  folly 
to  make  any  such  arbitrary  distribution  of  wages  paid.  In  fact,  many  plants 
using  a common  overhead  expense  rate  for  all  departments,  currently  make  a 
very  respectable  expenditure  for  time-keeping  on  individual  orders  that  a correct 
(?)  record  of  cost  may  be  obtained. 

The  following  table  gives  the  proportionate  amount  of  each  kind  of  expense 
incurred  in  the  manufacture  of  Rotary  Veneer,  Lumber  Cores  and  Plywood. 
These  figures  were  complied  from  the  expense  analysis  of  25  concerns  and  may 
be  regarded  as  fairly  representative.  (For  comparisons  read  across  the  page.) 


Rotary 

Lumber 

Veneer 

Cores 

Plywood 

Rent.  

7.0% 

9.0% 

12.6% 

Power,  Heat  and  Light. 

38.3 

34.4 

16.4 

Charges  Against  Equipment 

10.5 

12.7 

8.0 

General  Manufacturing  Expense 

21.6 

20.8 

31.0 

Administration  and  Sales 

22.6 

23.1 

32.0 

Total  Expense 

100.0% 

100.0% 

100.0% 

No  manufacturer  operating  a veneer  mill  in  Mississippi,  a core  plant  in 
Wisconsin  and  a plywood  factory  in  Vermont  and  marketing  the  respective 
products  independently,  would  think  of  pooling  the  expenses  of  the  three  plants 
and  using  a uniform  rate  for  all  three.  Yet  this  is  the  effect  of  the  practice 
commonly  followed. 

The  fact  that  veneers  and  panels  may  be  made  under  the  same  roof  is 
merely  incidental  and  does  not  alter  the  fact  that  the  costs  of  the  two  products 
are  in  no  way  comparable. 

The  following  actual  example,  taken  from  the  cost  analysis  of  one  of  our  mem- 
bers, is  cited  to  show  how  deceiving  a uniform  distribution  of  Expense  may  prove. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


18 


APPORTIONMENT 


Expense 
• Revised  1922 


EXAMPLE 

Synopsis  of  Expense  Analysis  of  the  Blank  Mfg.  Co.,  manufacturing  and 
marketing  Rotary  Veneer  and  Panels. 


Rotary  Veneer  Manufacturing. 

Manufacturing  Expense 


Rental  Charge,  8,500  sq.  ft.  @ $0.20. $ 1,700.00 

Equipment  Charge  $35,000.00  @ 17% 5,950.00 

Power,  Heat  and  Light 28,800.00 

General  Expense 6,000.00 

Administrative  and  Sales  Expense 6,000.00 


Total  Expense $48,450.00 


Labor,  24  employes  @ 2,500  hours  per  annum,  60,000  man-hours. 
Expense  rate,  = $0.8075  per  man-hour. 


Plywood  Manufacturing 

Manufacturing  Expense 


Rental  Charge  38,000  sq.  ft.  @ $0.20. $ 7,600.00 

Equipment  Charge,  $25,000  @ 17%. 4,250.00 

Power,  Heat  and  Light 4,800.00 

General  Expense 13,200.00 

Administrative  and  Sales  Expense 12,000.00 


Total  Expense $41,850.00 


Labor,  48  employes  @ 2,500  hours  per  annum,  120,000  man-hours. 
Expense  Rate,  x2o'ooo  m-'h  ^ $0.3488  per  man-hour. 


Combined  Departments 


Expense  Rate, 


Combined  Expense,  890,300.00 
Combined  Labor,  180,000  m-h 


= $0.5017  per  man-hour. 


Comparative  Results 

Rotary  Veneer  Manufacturing 

60,000  m-h  @ actual  rate,  $0.8075  per  m-h... 
60,000  m-h  @ average  rate,  0.5017  per  m-h._. 


Undercharge  (Annual  Loss).__ 

Annual  output  of  Rotary  Veneer,  8,000,000  sq.  ft. 

Soon.  -$2.29  per  1,000  ft.  loss. 


Plywood  Manufacturing 

120,000  m-h  @ average  rate,  $0.5017  per  m-h. 
120,000  m-h  actual  rate,  0.3488  per  m-h. 

Overcharge  (Annual  Penalty) 

Annual  Output  of  Plywood,  2,500,000  sq.  ft. 

SSir=»7.34per  1,000  ft.  penalty. 


$48,450.00 
. 30,102.00 

$18,348.00 


$60,204.00 
. 41,856.00 

$18,348.00 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


11. 


Expense 
Revised  1922 


APPRAISALS 


19 


A casual  comparison  of  the  two  sets  of  figures  will  disclose  the  following 
facts: 

Rotary  Veneer  Manufacturing  occupies  less  than  one-fourth  the  floor 
space  used  by  Plywood  Manufacturing,  is  responsible  for  less  than  half  as  much 
General  Expense,  and  one-half  the  Administrative  and  Sales  Expense.  However, 
these  differences  are  largely  offset  by  the  fact  that  the  amount  of  money  tied 
up  in  Rotary  Veneer  equipment  is  40%  more,  and  the  Power,  Heat  and  Light 
required  for  operation  is  six  times  that  consumed  by  the  Plywood  Department. 

As  the  total  expense  is  to  be  divided  by  the  labor  hours,  and  as  the  number 
of  employees  and  yearly  man-hours  of  labor  in  the  Rotary  Veneer  Manufacturing 
Department  are  only  half  those  in  the  Plywood  Department,  the  resulting  man- 
hour rates  show  a contrast  of  over  one  hundred  percent. 

Referring  to  the  figures  for  the  combined  departments,  we  find  an  average 
rate  of  SO. 5017  per  rffan-hour.  By  using  this  average  rate  (which  has  been  the 
common  practice  hitherto)  and  the  actual  rates,  it  is  shown  in  the  paragraphs 
immediately  following  that  the  annual  charges  against  Rotary  Veneer  were 
$18,348.00  less  than  they  should  have  been,  and  that  Plywood  has  been  penalized 
to  the  same  extent.  As  this  member’s  annual  output  of  Veneer  was  eight  million 
feet,  his  cost  records  fell  short  to  the  extent  of  $2.29  per  thousand  feet,  and  if 
his  sales  prices  were  based  upon  recorded  costs,  he  failed  to  invoice  about 
$20,000.00  of  actual  value  that  he  was  entitled  to,  and  under  market  conditions 
prevailing  at  the  time,  could  have  been  collected. 

On  the  other  hand,  the  output  of  Plywood  was  about  two  and  one-half  million 
feet,  and  the  penalty  imposed  was  therefore  about  $7.34  per  thousand.  Con- 
sequently prices  based  upon  cost  records  were  approximately  $8.00  per  thousand 
too  high,  which  in  normal  or  subnormal  times  would  have  exerted  a negative 
influence  in  meeting  competition  and  contributed  to  restricted  sales  and  product- 
ion as  well  as  an  increase  in  burden.  It  might  be  mentioned  in  passing  that  this 
member  expended  a great  deal  of  care  in  procuring  correct  labor  costs,  yet  the 
discrepancy  resulting  from  using  a uniform  expense  rate  amounted  to  68%  of 
the  total  productive  payroll  in  the  Rotary  Veneer  Department  and  39%  in  the 
Plywood  Department. 

Observation  of  practices  in  many  Plywood  plants  discloses  the  fact  that 
much  more  attention  is  commonly  given  the  matter  of  correct  Labor  costing 
than  to  the  subject  of  Expense,  although  the  latter  is  the  greater  item  in  nearly 
every  case.  It  is  suggested  that  while  Labor  costs  should  not  be  neglected. 
Expense  should  by  all  means  be  just  as  carefully  analyzed,  determined  and 
charged. 


EVALUATION  OF  PROPERTY 

As  the  coi’rect  determination  of  cost  must  be  founded  upon  knowledge 
of  actual  conditions,  and  as  some  of  the  factors  of  cost  are  based  upon  the  valu- 
ation of  land,  buildings  and  equipment,  it  is  essential  that  a fair  appraisal  of 
plant  be  available.  Approximated  valuations  are  better  than  no  appraisal 
at  all  but  members  are  urged  to  have  evaluations  made  and  maintained  on  the 
most  approved  basis.  In  addition  to  the  advantage  of  a careful  appraisal 
in  costing,  it  is  invaluable  in  case  of  loss  by  fire. 


STANDARD  COSTING  PRINCIPLES 
.PLYWOOD  MANUFACTURERS  ASSOCIATION 


20 


MANUFACTURING  EXPENSE INTEREST  11. 


Expense 
Revised  1922 


MANUFACTURING  EXPENSE 

We  now  come  to  a consideration  of  the  expense  factors  themselves,  beginning 
with  the  first  major  division,  Manufacturing,  or  Conversion  Expense,  and  its 
elements.  As  previously  noted,  it  is  important  that  each  department  or  product 
be  charged  with  its  just  proportion  of  expense.  The  correct  amounts  of  some 
manufacturing  expense  elements  are  easily  calculated  by  departments,  such 
as  Rental  charges  based  upon  the  space  occupied;  Depreciation,  Repairs,  In- 
surance, etc.  on  the  particular  equipment  used,  and  the  Power  consumed  by  each 
department.  These  are  called  Departmental  Expenses.  There  are  other,  gen- 
eral, manufacturing  expenses,  such  as  the  cost  of  Superintendence,  Costing, 
Planning,  etc.,  in  which  all  departments  share,  and  which  must  be  divided  and 
charged  into  Departmental  Expenses  according  to  the  proportion  for  which  each 
department  is  responsible. 

On  the  pages  which  follow  will  be  found  a discussion  of  each  expense  factor, 
the  elements  which  enter  into  it  and  the  method  of  apportionment  to  departments. 


INTEREST  ON  INVESTMENT 

The  question  of  whether  Interest  on  Investment  should  be  regarded  as  a 
part  of  profits  or  as  an  element  of  cost  has  been  much  debated,  and  it  is  recognized 
that  both  sides  have  been  ably  championed  by  accountants  and  engineers 
high  in  their  professions. 

It  is  essential  to  uniform  costing  that  standards  covering  all  phases  be  adopted, 
and  as  there  are  tenable  reasons  for  treating  as  Cost,  Interest  on  Investment  in 
Land,  Buildings,  Power  equipment.  Cartage  Equipment,  Sprinkler  Systems  and 
Fire-fighting  Apparatus  only,  this  principle  is  recommended  as  standard  in  the 
Plywood  industry.  The  following  reasons  are  offered  for  this  stand; 

Land  and  Buildings  may  be  owned  by  the  operating  concern  or  rented  from 
others.  In  the  one  case  the  operator  is  acting  as  his  own  landlord  and  as  such 
is  entitled  to  the  same  returns  from  the  investment  that  he  would  receive  if  the 
land  and  buildings  were  rented  to  another  concern.  He  not  only  pays  for  De- 
preciation, Taxes,  Insurance  and  Repairs  but  must  withdraw  capital  from  a 
going  business  normally  making  good  returns  and  invest  it  in  housing.  He 
is  in  direct  competition  with  manufacturers  who  may  find  it  more  profitable 
or  practical  to  use  property  belonging  to  others  and  who  pay  rent  which  covers 
the  owner’s  loss  in  depreciation,  repairs,  etc.,  and  a fair  return  on  his  investment. 

The  same  argument  applies  to  Power.  One  company  may  buy  all  its  power 
in  the  form  of  electric  current  from  a corporation  who  makes  a business  of  gener- 
ating and  selling  it  for  profit.  Another  concern  may  have  its  own  power  plant, 
but  nevertheless  pays  in  the  form  of  Depreciation,  Repairs,  Taxes,  Insurance, 
Wages,  Fuel,  etc.  and,  as  in  the  case  of  owned  buildings,  must  realize  on  the 
capital  invested  in  plant  in  the  form  of  a charge  against  product  to  offset  what 
it  would  otherwise  realize  if  invested  in  additional  material,  labor  or  manufac- 
turing equipment. 

If  all  cartage  were  performed  by  contract  with  others,  a profit  on  the  use 
of  capital  would  be  included  in  the  charge  made,  and  so  an  investment  charge 
should  be  made  against  owned  cartage  equipment. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


11. 


Expense 
Revised  1922 


MAINTENANCE 


21 


Sprinkler  Systems  and  Fire-fighting  Apparatus  are  installed  to  reduce  the 
cost  of  insurance  as  well  as  to  offer  better  protection,  and  so  interest  on  the 
capital  withdrawn  from  manufacturing  for  the  purpose  should  be  charged  into 
the  cost  of  product  in  the  form  of  insurance. 

If,  in  the  Plywood  Industry,  as  in  some  others,  it  were  a common,  or  even 
occasional  practice  to  rent  manufacturing  equipment,  then  it  would  be  logical 
for  those  who  own  their  manufacturing  equipment  to  charge  interest  on  the 
amount  invested.  As,  in  this  industry,  all  equipment  is  owned  by  the  operating 
companies,  no  further  account  may  be  made  of  this  item  in  determining  expense. 

A prolonged  discussion  of  the  topic  might  be  indulged  in,  presenting  the  vari- 
ous views  commonly  held  by  opposing  camps  for  and  against  considering 
' interest  on  all  invested  capital  as  a part  of  cost,  but  the  above  position  as  out- 

lined is  based  upon  conditions  as  they  exist  in  Plywood  manufacturing  and 
fairly  represents  a logical  middle  ground.  It  should  be  noted,  however  that  the 
United  States  Government  does  not  recognize  interest  on  invested  capital  as 
a part  of  cost  except  when  actually  paid  out  for  loans,  and  it  will  therefore  be 
necessary  in  making  out  federal  tax  returns  to  treat  such  charges  as  income. 

The  Replacement  Value  of  buildings  and  equipment  should  be  used  in 
figuring  interest  on  investment.  Some  will  contend  that  the  facts  do  not 
support  this  view.  However,  the  difference  between  the  sound  or  depreciated 
values  and  replacement  or  new  values  is  tied  up  in  a Replacement  Reserve, 
and  it  is  merely  a question  of  form  and  not  of  amount  of  investment.  If  the 
\ reserve  is  invested,  the  interest  realized  should  be  treated  as  income. 


MAINTENANCE 

Depreciation.  This  factor  of  Expense,  termed  by  some  a contingency 
rather  than  an  expense,  must  be  reckoned  with  in  connection  with  the  ownership 
of  buildings,  equipment,  and  even  good  will  and  patents.  In  ordinary  practice, 
however,  only  buildings  and  equipment  need  be  considered.  Depreciation  is 
commonly  regarded  as  covering  wear  and  tear  not  offset  by  ordinary  repairs, 
and,  in  the  case  of  equipment,  obsolescence  due  to  the  introduction  of  improved 
types,  and  in  some  cases,  inutility  due  to  changes  in  methods  of  manufacture  or 
character  of  product. 

A machine  costs  money.  It  must  be  paid  for.  It  will  not  last  forever.  It 
is  used  up  in  the  manufacture  of  product,  is  therefore  a part  of  the  cost  of  pro- 
duct and  must  be  so  treated. 

It  will  be  seen  from  the  foregoing  that  the  basis  for  determining  the  correct 
charge  for  depreciation  is  the  number  of  years  representing  the  useful  life  of  the 
property  in  which  the  capital  is  invested,  and  at  the  end  of  which  it  is  without 
value  as  a manufacturing  asset — in  other  words,  the  active  life  of  the  investment. 

The  amount  included  in  the  Maintenance  Reserve  for  Depreciation  should 
be  based  upon  this  principle,  and  two  methods  are  commonly  followed  for  ac- 
complishing it.  One  is  to  set  aside  annually  an  amount  equal  to  the  purchase 
price,  less  the  estimated  scrap  value,  divided  by  the  estimated  life  in  years. 
This  is  called  the  “straight  line  method.”  To  illustrate;  A machine  is  pur- 
chased for  -11,000.00.  It  is  anticipated  that  it  will  be  worn  out  at  the  end  of 


STANDARD  COSTING  PRINCIPEES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


22 


MAINTENANCE 


Expense 
• Revised  1922 


10  years,  and  that  the  scrap  value  will  be  $50.00.  One  tenth  of  the  difference  or 
$95.00  is  therefore  set  aside  in  reserves  each  year,  amounting  at  the  end  of  the 
period,  together  with  the  amount  realized  from  the  sale  of  the  machine  as  scrap, 
to  the  original  purchase  price,  for  which  a new  machine  may  presumably  be  pur- 
cha.sed. 

The  other  plan  is  to  charge  depreciation  against  the  “diminishing  line  of 
values.”  In  other  words,  a uniform  percentage  rate  is  deducted  each  year  from 
the  depreciated  values  of  the  previous  year,  which  will  leave  approximately 
the  scrap  value  at  the  end  of  the  period.  For  example,  in  the  case  of  the  ma- 
chine just  cited,  instead  of  deducting  $100.00  each  year,  25%  of  the  inventory 
value  would  be  set  aside  annually  in  the  reserve.  The  first  year  it  would  amount 
to  25%  of  $1,000.00  or  $250.00.  The  second  year  25%  of  $750.00  ($1,000.00 
less  $250.00),  or  $187.50,  and  so  on,  leaving  $56.32  as  scrap  value  at  the  end 
of  the  10th  year. 

While  each  plan  has  its  champions,  the  method  of  figuring  depreciation  by 
the  “straight  line  method”  is  recommended  for  use  by  the  Plywood  Manufacturers 
Association  as  standard,  as  it  is  simpler  and  for  some  reasons  more  satisfactory. 

Obsolescence.  The  contingency  of  a piece  of  equipment  having  to  be  retired 
when  still  in  good  physical  condition  because  of  the  introduction  of  an  improved 
tj^pe  which  would  make  the  further  operation  of  the  older  machine  unprofitable 
is  purely  a matter  of  conjecture  and  can  not  be  determined  with  any  assurance 
of  accuracy.  However,  this  is  sometimes  a very  large  item  of  cost  and  must  not 
be  entirely  ignored;  in  fact  it  should  be  rather  liberally  provided  for,  as  the  Ply- 
wood Industry  is  still  in  its  infancy  and  definite  plans  are  in  operation  for  trade 
extension  looking  to  the  use  of  the  product  in,  heretofore,  undeveloped  fields. 

Repairs.  It  will  be  found  that  the  expenditures  for  repairs  will  vary  greatly 
with  different  years,  owing,  perhaps,  not  so  much  to  immediate  necessities  as  to 
other  conditions  making  the  doing  of  such  work  more  logical  and  convenient  at 
some  periods  than  at  others.  Therefore  it  is  found  practical  to  charge  into  manu- 
facturing cost  an  amount  fairly  representing  the  average  cost  of  repairs  rather 
than  to  charge  the  actual  amounts  expended. 

Maintenance  Reserve.  (Reserve  for  Depreciation,  Obsolescence  and 
Repairs.)  It  is  common  practice  among  accountants  to  treat  Depreciation  and 
Repairs  separately.  Some  go  further  and  make  a subdivision  of  Obsolescence. 
It  is  often  difficult  to  know  just  where  to  draw  the  line  between  these  different 
classifications  of  Expense.  In  the  end  they  all  amount  to  the  same  thing — cost 
of  Maintenance.  A machine  may  be  repaired  by  the  replacement  of  a bolt  or  a 
screw  or  some  other  insignificant  part,  or  the  occasion  may  call  for  a new  pulley, 
or  perhaps  some  large  casting.  It  may  even  in  time  become  like  the  old  jack 
knife  which  had  new  blades  and  a new  handle  but  was  still  the  same  old  knife. 
It  requires  just  so  much  money  to  maintain  equipment  at  efficiency  whether  it 
be  expended  in  Repairs  or  Replacements,  or  both.  As  far  as  cost  accounting  is 
concerned  it  is  not  necessary  to  draw  any  line.  However,  there  is  no  possible 
objection  to  keeping  separate  Depreciation  and  Repair  accounts  when  a sepa- 
ration is  for  any  reason  desired — indeed  some  may  prefer  to  keep  separate  ac- 
counts with  each  machine,  or  building. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


11. 


Expense 
Revised  1922 


TAXES INSURANCE 


23 


For  the  reasons  set  forth,  consolidated  Maintenance  figures  covering  De- 
preciation, Obsolescence  and  Repairs  are  recommended,  and  the  percentages 
shown  in  the  following  table  are  also  recommended  for  use  in  setting  up  reserves 
for  this  purpose.  All  expenditures  for  Repairs  and  Replacements  should  be 
made  from  this  Maintenance  Reserve,  and  it  should  be  credited  with  the  pro- 
ceeds from  the  sale  of  equipment,  but  any  expenditures  for  additional  equip- 
ment or  buildings  should  be  made  from  current  funds,  and  these  amounts  added 
to  the  values  used  as  a basis  in  setting  up  the  reserve.  It  should  be  noted  that 
the  percentages  given  in  the  table  are  to  be  taken  on  the  Replacement  Values. 


RECOMMENDED  ANNUAL  MAINTENANCE  RATES 


Covering  Depreciation,  Obsolescence  and  Repairs 


Buildings, 

Brick  or  Concrete 5% 

Frame 9 

Kilns  (Buildings  only), 

Brick,  Tile  or  Concrete 10% 

Frame 25 


Equipment, 

Automobiles  and  Trucks. .-25% 


Belting.— 20 

Cauls 20 

Fire  Fighting  Apparatus  ...20 
Mfg.  Mchy.  and  Equipm’t..l5 
Steam  and  Power  Equip ’t  . 15 

Railroad  Sidings 15 

Sprinkler  Systems 5 

Teams  and  Vehicles 25 


TAXES 

According  to  the  view  of  the  United  States  Government,  Income,  and 
Excess  Profits  Taxes  are  not  a part  of  the  cost  of  doing  business  but  must  be 
paid  out  of  the  profits.  However,  this  should  not  prohibit  the  setting  aside  of  a 
reserve  for  this  purpose  by  those  who  wish  to  do  so. 

Corporation  and  Capital  Stock  Taxes  should  be  charged  to  Administrative 
Expense  as  the  economical  operation  of  plant  is  in  no  way  responsible  for  them. 

Real  Estate  and  Personal  Taxes  are  properly  charged  against  the  prop- 
erty and  divided  according  to  valuations  of  buildings  and  equipment. 


INSURANCE  ^ 

Property  Insurance,  such  as  Fire,  Sprinkler  Leakage,  Tornado,  etc.,  should 
be  charged  and  distributed  according  to  the  use  made  of  the  property  insured. 

Included  with  Property  Insurance  should  be  the  charges  against  Sprinkler 
Equipment  and  Fire  Fighting  Apparatus,  comprising  Interest  on  Investment, 
Maintenance  and  Taxes. 

Boiler  Insurance  should  be  charged  directly  against  Steam  Generation. 

Insurance  upon  the  lives  of  executives.  Employers  Liability,  Payroll,  Use 
and  Occupancy,  and  other  strictly  “economic”  Insurance  should  be  charged 
against  Administrative  Expense. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


24 


EQUIPMENT RENT POWER STEAM  11.  REvf8'’E‘ir®i922 


EQUIPMENT  CHARGES 

Under  “Equipment”  is  classed  all  machinery  and  other  fixed  assets  used 
in  production  aside  from  Land  and  Buildings.  Thus  piping  for  kilns,  as  well 
as  trucks,  saws,  sanders,  etc.,  would  be  treated  under  this  head.  The  charges 
against  equipment  are  Maintenance,  Taxes  and  Insurance  which  have  been 
discussed  in  the  preceeding  paragraphs.  As  previously  noticed,  some  equipment, 
is  also  charged  with  interest  on  investment.  Any  expenditures  for  royalties  or 
leases  of  equipment  should  also  be  included. 

Distribution  is  made  to  product  for  which  equipment  is  used,  the  charge 
having  been  reduced  to  a percentage  rate  on  the  valuation  of  the  equipment. 


RENT 

In  the  case  of  buildings  owned  by  others,  rental  charges  would  be  covered 
by  the  rent  paid,  plus  any  repairs  or  other  expense  which  the  owner  does  not  as- 
sume. 

Where  the  property  is  owned  by  the  operating  company,  the  charges  would 
include  Taxes  and  Interest  on  Investment  in  land  and  buildings,  together  with 
Maintenance  and  Insurance  on  Buildings. 

Distribution  of  rent  to  departments  is  usually  made  on  the  basis  of  area 
occupied.  The  plant  may  be  made  up  of  buildings  of  different  constructions 
and  character  but  if  this  is  only  incidental  and  any  construction  could  be  used  as 
well  for  one  department  as  another  then  the  particular  department  occupying  a 
brick  or  concrete  building  should  be  charged  no  more  in  proportion  than  the  depar- 
ment  occupying  a frame  building,  and  all  the  charges  against  all  the  buildings 
may  be  pooled  and  divided  according  to  area  occupied  by  each  department. 
If,  however,  a particular  department  requires  and  occupies  a special  building 
or  specially  constructed  portion  of  same,  the  charge  should  be  against  the  actual 
valuation. 

Charges  against  Land  are  distributed  on  the  basis  of  area  occupied,  similarly 
to  the  method  used  in  apportioning  building  rent. 

In  figuring  the  rental  charges  for  buildings,  however,  the  charges  against 
the  land  occupied  by  same  must  not  be  overlooked  but  must  be  included  in  the 
total  Building  Rental  Charge  before  distribution. 


STEAM  GENERATION 

This  should  include  Fuel  Purchased,  Steam  Power  Plant  Supplies,  Water 
Tax,  Boiler  Insurance  and  the  proportionate  Rental  and  Equipment  Charges. 
Steam  Generation  should  also  be  charged  with  the  Fuel  Value  of  Waste  Burned, 
and  a corresponding  credit  made  to  Material. 

The  wages  of  Engineers  and  Firemen  are  included  in  Labor  and  are  more 
fully  treated  in  Section  IV. 

Distribution  of  charges  should  be  made  on  the  basis  of  the  Boiler  Horse 
•Power  consumed  by  each  department. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Expense 
• Revised  1922 


POWER H.  & L. GENERAL  EXPENSE 


25 


POWER 

When  generated  on  the  premises,  this  should  include  its  share  of  the  Steam 
Generation  Expense ; the  Equipment  Charges  against  Power  equipment ; and  lubri- 
cating oils  and  other  power  plant  supplies.  Equipment  charges  against  line,  and 
counter  shafting,  pulleys,  belts,  motors,  starting  boxes  and  power  wiring,  should 
be  included  under  departmental  manufacturing  expense  and  not  under  Power. 

Distribution  should  be  made  to  departments  on  the  basis  of  the  amount  of 
power  consumed. 


HEAT  AND  LIGHT 

Under  this  heading,  “heat”  is  intended  to  represent  only  that  part  of  it 
which  is  used  to  heat  the  buildings  for  the  comfort  of  employes  and  does  not 
include  that  employed  for  drying,  etc.;  which  comes  under  “Steam  Generation.” 
It  will  be  found  that  in  most  cases  the  consumption  of  both  building  heat  and 
light  will  very  nearly  parallel  the  number  of  employes  in  each  department,  and 
that  therefore  these  two  elements  of  expense  may  be  considered  jointly  and 
distributed  on  the  basis  of  the  Man-hours  of  Labor.  For  this  reason,  it  may  be 
included  in  General  Manufacturing  Expense,  as  this  is  distributed  on  a Man-hour 
basis,  also.  The  charges  against  Heat  and  Light  include  the  cost  of  Purchased 
Light  Current;  Equipment  charges  against  heat  and  light  equipment;  the  pro- 
portionate cost  of  Steam  used  for  heat,  and  the  charge  for  Power  consumed  in 
generating  light. 


GENERAL  EXPENSE 

It  will  be^  noted  by  the  foregoing  that  whenever  it  is  possible  to  identify 
an  expenditure  as  belonging  to  a particular  department  or  product  it  should  be 
charged  directly  against  same.  There  are  many  items  of  manufacturing  ex- 
pense, however,  for  which  no  particular  department  is  responsible,  but  through 
which  the  whole  operation  benefits.  These  items  are,  the  Salaries  of  the  Super- 
intendent and  Assistants,  personnel  of  the  factory  office,  cost,  time-keeping,  and 
planning  departments;  Supplies  and  Sundry  Expense  of  the  factory  office;  Rental 
charges  against  the  factory  office  and  any  space  used  for  general  purposes  or 
vacant;  charges  against  unused  equipment  and  Equipment  used  for  general 
purposes;  Power,  Heat  and  Light  for  purposes  not  strictly  departmental;  Sundry 
Factory  Supplies  and  Expense;  Industrial  Life  Insurance  for  wage  earners  and 
Cartage  Expense. 

General  Indirect  Labor  such  as  watchmen,  millwrights  and  other  help  not  con- 
nected with  departments,  also  Departmental  Indirect  Labor  including  foremen, 
truckers,  etc,  should  be  treated  as  Labor  and  is  discussed  fully  in  Section  IV. 

However,  for  the  benefit  of  those  who  are  collecting  Direct  Labor  only,  by 
orders  or  departments,  it  may  be  stated  here  that  a rate  per  man-hour  to  cover 
all  Indirect  Labor  may  be  added  to  the  Direct  Labor  Wages  to  show  the  whole 
Labor  Cost. 

The  total  of  General  Expense  is  apportioned  to  departments  according  to 
the  man-hours  of  labor  in  each,  and  to  the  amount  thus  determined  as  charge- 
able against  each  department,  is  added  any  miscellaneous  expense  for  which  the 
department  is  directly  responsible. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


26 


ADMINISTRATION  AND  SALES 


Expense 
• Revised  1922 


Shipping 

Labor  and  equipment  are  required  in  the  preparation  of  crates,  and  delivery 
to  cars  or  trucks;  and  in  small  plants  these  are  customarily  furnished  by  manu- 
facturing departments.  Plywood  Shipping  is  therefore  commonly  under  factory 
supervision  and  will  be  treated  in  Association  costing  as  a part  of  Manufacturing 
Cost,  the  shipping  labor  and  material  being  taken  care  of  under  these  respective 
heads,  and  the  items  of  expense  included  under  General  Expense. 


ADMINISTRATIVE  EXPENSE 

As  stated  in  Section  I,  “Administrative  Expense  has  to  do  with  those  items 
not  chargeable  to  manufacturing,  but  for  which  the  general  management  is 
responsible.”  By  referring  to  the  chart  and  tabulations  of  Expense  Analysis, 
it  will  be  noted  that  included  under  this  heading  are  Office  Rental  Charge,  Office 
Equipment  Charge,  Office  Heat  and  Light  Charge,  Corporation  Taxes,  Capital 
Stock  Taxes,  Use  and  Occupancy  Insurance,  Payroll  Insurance,  Forgery  In- 
surance, Liability  Insurance,  Executive  Life  Insurance,  Executive  and  Office 
Salaries,  Donations,  Miscellaneous  Traveling  Expense,  Discounts  on  Sales, 
Interest  and  Discount,  Collection  and  Credit  Expense,  Legal  and  Professional 
Services,  Postage,  Telephone  and  Telegraph,  Stationery  and  Printing,  Bad 
Debts,  Association  and  Club  Dues,  Welfare  Expense,  Sundry  Office  Expense. 

Administrative  Expense  should  be  distributed  to  departments  on  a basis 
of  man-hours  of  labor  in  each. 


SALES  EXPENSE 

Sales  Expense  has  to  do  with  those  expenditures  incurred  in  the  marketing 
of  product,  such  as  Salesmen’s  Salaries,  Commissions  and  Expenses;  Advertis- 
ing, and  its  fair  proportion  of  charges  for  Telephone,  Telegraph,  Postage,  Sup- 
plies, Clerical  Help,  etc. 

Freight  and  Express  Allowed  and  Prepaid  on  Sales  shipments  are  a part 
of  Sales  Expense.  However  it  is  a matter  of  policy  whether  the  total  amount 
so  expended  shall  be  included  in  the  budget  from  which  the  man-hour  rate  is  figur- 
ed. To  do  so  would  result  in  including  transportation  charges  in  the  cost  of 
all  shipments  whether  quoted  f.  o.  b.  factory  or  delivered,  and  would  also 
make  no  distinction  in  cost  between  goods  delivered  within  a 50-mile  zone  and 
those  sold  1000  miles  away.  In  figuring  the  cost  of  transportation  on  shipments 
where  it  is  included  in  the  price,  it  is  recommended  that  the  actual  cost  apply- 
ing to  each  individual  case  be  used. 

The  sale  of  Product  means  the  sale  of  Labor  from  which  a profit,  the  profit 
of  manufacturing,  is  derived.  The  profit  from  manufacturing  is  the  profit  from 
converting  raw  material  into  finished  product.  The  fundamental  factor  of  con- 
version is  labor.  The  more  labor  employed,  the  more  selling  effort  is  required 
to  provide  an  outlet  for  its  product;  so  that  the  sale  of  Product  means  the  sale 
of  Labor,  and  it  matters  little  whether  that  labor  is  in  the  office,  the  veneer 
department  or  the  glue  room,  as  a certain  amount  of  sales  effort  is  required 
to  keep  a normal  force  employed. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


11. 


Expense 
Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


27 


For  the  reasons  stated,  Sales  Expense  should  be  distributed  to  product  on 
the  basis  of  man-hours  of  labor  employed  on  each.  In  special  cases  where  a Ply- 
wood concern  also  manufactures  other  lines  requiring  special  sales  effort,  such 
special  lines  should  bear  their  own  sales  burden.. 

In  most  member  organizations  the  functions  of  Administration  and  Selling 
are  performed  by  the  same  persons  and  may  be  treated  under  the  combined 
head  of  Administrative  and  Sales  Expense,  although  a separation  may  be  made 
where  deemed  advisable. 


DETERMINATION  OF  DIFFERENTIAL  EXPENSE  RATES 

On  the  following  pages  will  be  found  the  actual  steps  necessary  in  determin- 
ing Differential  Man-Hour  Expense  Rates,  the  figures  used  being  hypothetical. 
A study  of  this  example  in  connection  with  the  reading  of  the  text  will  be  found 
greatly  to  facilitate  a thorough  understanding  of  the  principles  underlying  Ex- 
pense Analysis  and  the  practical  application  of  same. 

DATA  REQUIRED 

The  data  required  from  which  to  determine  the  differential  Expense  Rates 
is  indicated  on  the  following  form.  Budgeted  figures  based  upon  full  operation 
should  be  used.  All  valuation  figures  should  represent  the  replacement  value  of 
buildings  or  equipment  as  the  case  may  be. 


Property  Valuations 

Land $8,000.00 


Buildings  ' 

Office  Building  (construction?  Frame  ) $4~000.00 

Power  Plant  Building  (construction?  see  below  ) 0 

Manufacturing  Buildings,  brick None 

Manufacturing  Buildings,  concrete None 

Manufacturing  Buildings,  frame.. 110,000.00 

Garage  and  Misc.  Bldgs,  (construction?  frame  ) 2,000.00 

Kiln  Buildings,  not  including  piping  or  equipment 

Brick.  What  used  for?  Core  Lumber  4,500.00 

Frame.  What  used  for? 

Other  Buildings.  What  used  for? 

(Power  Plant  is  part  of  Manufacturing  bldg.) 120,600.00 


Equipment 

Sprinkler  System $ 16,000.00 

Fire  Fighting  Apparatus None 

Steam  Plant  Equipment... 11,100.00 

Power  Equipment. 7,000.00 

Refuse  Blower  System 2,800.00 

General  Office  Equipment 2,150.00 

Factory  Office  Equipment 700.00 

Shipping  Room  Equipment 960.00 

Auto  Trucks  and  Accessories... 3,400.00 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


28 


DIFFERENTIAL  RATE  DETERMINATION  IL 


Expense 
Revised  1922 


Property  Valuations — (Continued) 


Equipment — (Continued) 

Horses,  Wagons  and  Harness None 

Other  Stable  Equipment None 

Miscellaneous  Manufacturing  Equipment. 8,000.00 

Lumber  luln  Piping  and  Equipment 3,200.00 

Veneer  Kiln  Piping  and  Equipment.- 700.00 

Panel  Kiln  Piping  and  Equipment. None 

Rotary  Veneer  Manufacturing  Equipment  19,900.00 

Sliced  Veneer  Manufacturing  Equipment 8,940.00 

Sawn  Veneer  Manufacturing  Equipment W, 400.00 

Lumber  Manufacturing  Equipment 185.00 

Lumber  Core  Manufacturing  Equipment 17,300.00 

*Veneer  Preparation  (Taping  Room)  Equipment  0 

Plywood  Assembling  and  Finishing  Equipment.- 23,700.00 

Other  Equipment 

$132,435.00 

Total  Value  of  all  Property $260,935.00 


*Unle33  separate  costs  are  desired  on  Taped  Faces,  this  should  be  included  under  “Plywood  Assembling  and 
Finishing”. 


Areas  Occupied 


Land — Total  Area 


110,000  sq.  ft. 


Occupied  by 

General  Office  Building 2,000  sq.  ft. 

Steam  Plant  Building 2,000 

Fuel  Storage 1,000 

Kilns  (State  what  used  for) 

Core  Lumber 5,000 


Manufacturing  Buildings 43,500 

Garage  and  Miscellaneous  Buildings 1,000 

Log  Storage  for  Rotary  Veneers 7,400 

Log  Storage  for  Sliced  Veneers 5,500 

Log  Storage  for  Sawn  Veneers.— 1,500 

Log  Storage  for  Lumber 10,000 

Lumber  Storage  for  Cores 18,000 

Driveways,  General  Purpo.ses  and  Vacant 13,100 

Other  Purposes 


110,000  sq.  ft. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


II 


Expense 
Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


29 


Areas  Occupied — (Continued) 

Buildings 

Factory  Buildings,  Total  Floor  Area 70,000  sq.  ft . 


Occupied  by 

General  OflBce.__ 2,000  sq.  ft. 

Factory  Office 1,200 

Steam  Plant 1,400 

Power  Plant None 

General  Purposes  and  Vacant 8,700 

Rotary  Veneer  Manufacturing 9,600 

Sliced  Veneer  Manufacturing 14,700 

Sawn  Veneer  Manufacturing 7,100  sq  ft. 

Lumber  Manufacturing.— 600 

Lumber  Core  Manufacturing 4,700 

*Veneer  Preparation  (Taping  Room)  ..._ 0 

Plywood  Assembling  and  Finishing 20,000 

Other  Purposes 


- - . , TOfiOO^sq.  ft. 

♦Unless  separate  costs  are  desired  on  Taped  Faces,  this  should  be  included  under  “Plywood  Assembling  and 
Finishing’’. 


Expenses 


Taxes 


State  and  County $ 1,046.00 

City  Included  above  0 

Corporation 409.00 

Other  Taxes ^ S 1,464.00 


Forward 


$1,464.00 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


30 


DIFFERENTIAL  RATE  DETERMINATION  IL 


Expense 
Revised  1922 


Expenses — (Continued) 


Insurance  t(Annual  Premiums) 


Brought  Forward. 


Fire $ 843.75 

Sprinkler  Leakage None 

Tornado 286.60 

BoiIer._ 28.30 

Use  and  Occupancy.— None 

Paymaster.— 16.20 

Riot  and  Civil  Commotion 4^6.00 

Credit  Indemnity ^ 757.50 

Workmen’s  Compensation 3,713.00 

Public  Liability 14-30 

Elevator 7.60 

Life  (On  Executives).— None 

Industrial  Life  (On  Employees) None 

Other  Insurance 


tWhere  premium  payments  cover  more  than  one  year,  report  proportionate  cost  of  one  year  only. 


Steam  Generation 


Fuel  Purchased $ 5,635.00 

Fuel  Value  of  Refuse  Burned 6,635.00 

Purchased  Water  (for  Power  Plant). 129.35 

Other  Items 


Electric  Power  and  Light 


Power  Current  Purchased S 4,315.00 

Lubricating  Oils  and  other  Power  Plant  Supplies 441-36 

Other  Expenditures.- 


Forward. 


$1,454-00 


$6,141.26 


11,399.35 


$4.766.35 

$23,750.95 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


IL 


Expense 
Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


31 


Expense — (Continued) 


Brought  Forward. 


$23,750.96 


General  Manufacturing  Expense 


Salaries  of  Superintendent  and  Assistants,  Factory  Office 
Clerks,  including  Cost  and  Planning  Departments  (State 


number 3 ) : $ 12,662.00 

Sundry  Factory  Office  Supplies. — 38.59 

Sundry  Factory  Office  Expense 72.00 

Sundry  Factory  Supplies 1,428.00 

Sundry  Factory  Expense 724.00 

Water  for  General  Purposes 14-30 

Cartage  Expense None 

Sundry  Shipping  Department  Supplies  (not  including  crating 

material) 32.  60 

Sundry  Shipping  Department  Expenses 1 48.40 

Purchased  Light  Current 361.40 


Rent  paid  for  manufacturing  purposes. 


15,481.29 

None 


Departmental  Supplies.  (Enumerate  by  Departments) 

Plywood  Department,  Sand  Paper $ 2,238.00 


2,238.00 


*Repairs 


Repairs  to  Buildings $ 4,^17.60 

Repairs  to  Machinery  and  Equipment 4,635.23  8,852.73 

Forward $50,322.97 


♦The  furnishing  of  figures  on  Repairs  is  optional  as  a percentage  covering  Repairs  is  included  in  recommended 
Maintenance  rates.  Any  figures  on  repairs  should  represent  a fair  average  covering  a period  of  years. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


32 


DIFFERENTIAL  RATE  DETERMINATION  II. 


Expense 
Revised  1922 


Expense — ^(Continued) 

Brought  Forward... $60,322.97 

Administrative  Expense 

Salaries  of  Executive  Officers  and  Clerks $ 27,206.00 

Legal  and  Professional  Services 300. (X) 

Interest  Paid  (net) None 

Discount  Paid  (net) 26.67 

Discounts  allowed  on  Sales 8,962.00 

Association  and  Club  Dues  and  Assessments 760.00 

Donations  to  Charities,  etc 130.00 

Office  Stationery  and  Supplies 3,107.66 

Sundry  Office  Expense 967.60 

Postage,  Telephone  and  Telegraph. 376.00 

Welfare  Expense 600.00 

Miscellaneous  Traveling  Expense 261.13 

Sundry  Administrative  Expense 123.66 

Other  Items — — 


42,709.60 

Rent  paid  for  Office None 


Sales  Expense 


Salaries  of  Sales  Manager  and  Salesmen $ 4,000-00 

Commissions  of  Salesmen. 8,819.49 

Expenses  of  Salesmen None 

Clerical  salaries.  Sales  Department None 

Postage,  Telephone,  Telegraph,  Sales  Department None 

Sundry  Sales  Expense 4,667.24 

Advertising 2,160.00 

Other  Items 

%19,636.73 

Total  Annual  Expense $1 12,669.30 


DISTRIBUTION  OF  POWER,  HEAT  AND  LIGHT 


Department 

Rotary  Veneer. 

Steam  Gen- 
eration 

37% 

Power 

26% 

Sliced  Veneer 

16 

12 

Sawn  Veneer 

7 

19 

Lumber 

None 

6 

Lumber  Cores 

30 

18 

*Veneer  Preparation 

0 

0 

Plywood 

None 

20 

General  Purposes.. 

10 

None 

Other  Purnoses  

100% 

100% 

♦Unless  separate  costs  are  desired  on  Taped  Faces,  this  should  be  included  under  "Plywood  Assembling  and 
Finishing". 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


II 


Expense 
Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


33 


LABOR 

General  Indirect  Labor 


No. 

Men 

Hours 

Worked 

Man- 

Hours 

Distribution 

Rotary 

Veneer 

Sliced 

Veneer 

Sawn 

Veneer 

Lumber 

Lumber 

Cores 

Veneer 

Prep. 

Ply- 

wood 

Totals 

Watchmen 

1 

JiSSO 

4380 

% 

26 

% 

10 

% 

6 

% 

1 

% 

20 

% 

0 

% 

39 

% 

100 

Millwrights.... 

1 

3300 

3300 

6 

10 

15 

6 

15 

0 

60 

100 

Engineer 

1 

3300 

3300 

26 

12 

19 

5 

18 

0 

20 

100 

Firemen 

4 

4380 

17620 

41 

18 

8 

0 

33 

0 

0 

100 

Elevator  Op... 

None 

100 

Truckers 

2 

2860 

6720 

20 

10 

0 

0 

20 

0 

60 

100 

Sweepers 

None 

100 

Shipping 

None 

100 

Totals 

( 9 ) 

(34220) 

See  “D 

epartm 

ental 

Labor 

” belo 

w 

*Departniental  Labor 


P 


§Unless  separate  costs  are  desired  on  Taped  Faces,  this  should  be  included  under  “Plywood  Assembling 
and  Finishing”. 


Department 

Number 

Men 

Hours 

Operated 

Man-Hours 

Percent 

Departmental 

tGeneral 

Indirect 

Total 

Rotary  Veneer 

25 

2.860 

71,600 

10.446 

81.945 

23% 

Sliced  Veneer 

16 

2.860 

42.900 

4.890 

47.790 

14% 

Sawn  Veneer 

9 

2.860 

26.740 

2.743 

28.483 

8% 

Lumber 

2 

2.860 

6.720 

374 

6.094 

2% 

Lumber  Cores 

18 

2,860 

51,480 

8.890 

60.370 

17% 

§ Veneer  Preparation 

0 

0% 

Plywood 

42 

2,860 

120,120 

6.878 

126.998 

36% 

General  Indirect 

( 9 ) 

See  above 

Totals ’ 

120 

317,460 

34,220 

351,680 

100% 

♦Include  foremen  and  all  other  Departmental  Indirect  Labor. 
tSee  “General  Indirect  Labor”. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


34 


DIFFERENTIAL  RATE  DETERMINATION  II. 


SOLUTION 


Taxes 

Corporation  (To  Administrative  and  Sales  Expense) $ 409.00 

Real  and  Personal  (See  Distribution  below). 1,045.00 


Distribution  of  Real  and  Personal  Taxes  (on  basis  of  Valuations) : 


Valuations 

Ratio 

To 

Taxes 

Land 

$ 8,000.00 

3% 

Rent 

$ 31.35 

Buildings 

116,000.00 

4,500.00 

45% 

2% 

Rent 

470.25 

Kiln  Bldgs.,  Core  Lumber 

Rent 

20.90 

Total  to  Rent 

50% 

$ 522.50 

Equipment: 


Sprinkler  System 

..$  16,000  00 

6% 

Equip.  Exp. 

$ 

62.70 

Power  Equipment 

....  7,000.00 

3% 

Equip.  Exp. 

31.35 

Automobile  Trucks.  .. 

....  3,400.00 

1% 

Equip.  Exp. 

10.45 

Other  Equipment 

....  106,035.00 

40% 

Equip.  Exp. 

418.00 

Total  to  Equipment  Expense 

50% 

$ 

522.50 

Grand  Totals 

....$260,935.00 

100% 

$1,045.00 

Insurance 

Boiler  (to  Steam  Generation)  

Paymaster .$  16.20 

Riot  and  Civil  Commotion  475.00 

Credit  Indemnity 757.50 

Workmen’s  Compensation  3,713.00 

Public  Liability 14.30 

Elevator 7.60 


28.30 


(To  Administrative  and  Sales 

Expense 

4,983.60 

Fire $ 

843.75 

Tornado 

285.60 

Equipment  Charges  on 

Sprinkler  System 

1,822.70 

Total  Propertv  Insurance  (See  Distribution  below).. 

$2,952.05 

Distribution  of  Propertv  Insurance  (on  basis  of  Valuations): 

Valuations 

Ratio 

To 

Insurance 

Buildings 

$116,000.00 

49% 

Rent 

$1,446.50 

Kiln  Buildings  ... 

4,500.00 

2% 

Rent 

59.04 

Total  to  Rent 

51% 

$1,505.54 

Equipment : 

Power  Equipment 

.$  7,000.00 

3% 

Equip.  Exp. 

$ 88.56 

Automobile  Trucks 

3,400.00 

1% 

Equip.  Exp. 

29.52 

Other  Equipment 

. 106,035.00 

45% 

1,328.43 

Total  to  Equipment  Expense.-  

49% 

$1,446.51 

Grand  Totals 

$236,935.00 

100% 

$2,952.05 

Expense 
Revised  1922 


SI, 454.00 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


II 


Expense 
Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


35 


Equipment  Expense — 


To  Insurance 

Valuation  of  Sprinkler  System $ 16,000.00 

Interest  on  Investment—, 6% 

Maintenance— — . 5% 


11% 

Taxes 


To  Power 

Valuation  of  Power  Equipment $ 7,000.00 

Interest  on  Investment— 6% 

Maintenance. 15% 


21% 

Taxes 

Insurance 


$1,760.00 

62.70  $1,822.70 


$1,470.00 

31.35 

88.56  $1,589.91  8% 


*To  General  Expense 

Valuation  of  Automobile  Trucks $ 3,400.00 

Interest  on  Investment— 6% 

Maintenance. 25% 


31% 

Taxes.. 

Insurance 


$1,054.00 

10.45 

29.52  $1,093.97* 


Other  Equipment 


$15,905.25 

418.00 

1,328.43 

17,651.68 


$22,158.26 


Distribution  (on  basis  of  Valuations) 
Equipment 

Steam  Generation 

*General  Expense 

Administrative  and  Sales  Expense.. 

Rotary  Veneer  Manufacture 

Sliced  Veneer  Manufacture 

Sawn  Veneer  Manufacture. 

Lumber  Manufacture 

Lumber  Core  Manufacture 

Plywood  Assembling  and  Finishing 


$106,035.00  100%  $17,651.68 


Valuation 

Ratio 

Charge 

11,100.00 

10% 

$1,765.17 

8% 

12,460.00 

12% 

2,118.20* 

2,150.00 

2% 

353.03 

2% 

20,600.00 

20% 

3,530.34 

17% 

8,940.00 

9% 

1,588.65 

8% 

6,400.00 

6% 

1,059.10 

5% 

3,385.00 

3% 

529.55 

3% 

17,300.00 

16% 

2,824.27 

14% 

23,700.00 

22% 

3,883.37 

19% 

Valuation $106,035.00 

Maintenance.,, 15% 

Taxes 

Insurance 

(See  Distribution  Below) 


*To  General  Expense,  $1,093.97  plus  $2,118.20  equals  $3,212.17. 


16% 


100% 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


36 


DIFFERENTtAL  RATE  DETERMINATION  II. 

Revised  1922 


Rental  Expense 


Land 


Occupied  by 

Buildings- 48,500  sq.  ft. 

General  Purposes  and  Vacant 13,100 

Fuel  Storage 1,000 

Log  Storage  for  Rotary  Veneer._ 7,400 

Log  Storage  for  Sliced  Veneer 5,500 

Log  Storage  for  Sawn  Veneer 1,500 

Log  Storag^e  for  Lumber.. 10,000 

Kilns  for  Core  Lumber 5,000 

Storage  for  Core  Lumber 18,000  23,000 


110,000 

Valuation  of  Land $8,000.00 

Charges  Against  Land 

Interest  on  Investment— 6%  $ 

Taxes 


Distribution  of  Charges,  (See  distribution  of  Areas) 

To  Building  Rental  Expense 44  % $ 

To  General  Manufacturing  Expense 12 

To  Steam  Generation 1 

To  Rotary  Veneer  Manufacturing 7 

To  Sliced  Veneer  Manufacturing 5 

To  Sawn  Veneer  Manufacturing,. 1 

To  Lumber  Manufacturing 9 

To  Lumber  Core  Manufacturing 21 


100% 


110,000  sq.  ft. 


44% 

12 

1 

7 

5 

1 

9 

21 


100% 


480.00 

31.35 

$511.35 


225.00 

61.36 

5.11 

35.79 

25.57 

5.11 

46.02 

107.39 


$511.35 


Buildings 

Areas,  Floor Total 70,000  sq.  ft. 


Occupied  by 

General  Office 

Factory  Office 1,200  sq.  ft. 

General  Purposes.. 8,700 

Steam  Plant 

Rotary  Veneer  Manufacturing 

Sliced  Veneer  Manufacturing 

Sawn  Veneer  Manufacturing 

Lumber  Manufacturing 

Lumber  Core  Manufacturing 

Plywood  Manufacturing... 


. 2,000  sq.  ft. 

3% 

9,900 

14 

. 1,400 

2 

. 9,600 

14 

.14,700 

21 

. 7,100 

10 

. 600 

1 

. 4,700 

7 

20,000 

28 

70,000 

100% 

Valuation  of  Buildings,  not  including  Kilns 


$116,000.00 


Charges  against  Buildings 

Maintenance... 9% 

Interest  on  Investment... 6% 


15%  $17,400.00 


Taxes 470.25 

Insurance 1,446.50 

Land  Rental  Charge  (See  Land). 225.00  $19,541.75 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


11. 


Expense 
Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


37 


Rental  Expense — (Continued) 


Distribution  of  Charges  (See  Distribution  of  Areas) 


To  Administrative  and  Sales  Expense 

3% 

» 586.25 

To  General  Manufacturing  Expense 

14 

2,735.85 

To  Steam  Generation 

2 

390.84 

To  Rotary  Veneer  Manufacturing 

14 

2,735.85 

To  Sliced  Veneer  Manufacturing 

21 

4,103.77 

To  Sawn  Veneer  Manufacturing.  

10 

1,954.17 

To  Lumber  Manufacturing 

1 

195.41 

To  Lumber  Core  Manufacturing 

7 

1,367.92 

To  Plywood  Assembling  and  Finishing 

28 

5,471.69 

100% 

$19,541.75 

Valuation  of  Kiln  Buildings,  for  Core  Lumber.. 

S 4,500.00  = 

Charges  Against  Kiln  Buildings 

Maintenance.  

10% 

450.00 

Taxes._ 

20.90 

Insurance 

59.04 

529.94 

Total  Building  Rental  Expense.-- 

$20,071.69 

Summary  of  Rental  Charges 

To  Administrative  and  Sales  Expense 

Building  Rental  Charge  only.— 

$ 586.25 

3% 

To  General  Manufacturing  Expense 

Land  Rental  Charge 

..  $ 61.36 

Building  Rental  Charge 

..  2,735.85 

2,797.21 

14% 

To  Steam  Generation 

Land  Rental  Charge 

..$  5.11 

Building  Rental  Charge 

390.84 

395.95 

2% 

To  Rotary  Veneer  Manufacturing 

Land  Rental  Charge 

..$  35.79 

Building  Rental  Charge 

..  2,735.85 

2,771.64 

14% 

To  Sliced  Veneer  Manufacturing 

Land  Rental  Charge 

...$  25.57 

Building  Rental  Charge 

...  4,103.77 

4,129.34 

20% 

To  Sawn  Veneer  Manufacturing 

Land  Rental  Charge 

...$  5.11 

Building  Rental  Charge 

...  1,954.17 

1,959.28 

9% 

To  Lumber  Manufacturing 

Land  Rental  Charge 

...$  46.02 

Building  Rental  Charge 

195.41 

241.43 

1% 

To  Lumber  Core  Manufacturing 

Land  Rental  Charge 

..$  107.39 

Building  Rental  Charge 

...  1,367.92 

Kiln  Rental  Charge. 

529.94 

2,005.25 

10% 

To  Plywood  Assembling  and  Finishing 

Building  Rental  Charge  only. 

5,471.69 

27% 

Total  Rental  Expense.- 

$20,358.04 

100% 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


38 


DIFFERENTIAL  RATE  DETERMINATION  11. 


Expense 
Revised  1922 


Steam  Generation 

Charges 


Equipment  Charges S 1,765.17 

Rental  Charges 395.95 

Boiler  Insurance. 28.30 

*Other  Expenses  per  schedule 11,399.35 


Total 

Distribution  of  Charges  (on  basis  of  B.  T.  U.  u.sed) 

To  General  Expense  (heat  for  general  purposes) 10%  $ 1,358.89 

To  Rotary  Veneer  Manufacturing 37  5,027.78 

To  Sliced  Veneer  Manufacturing 16  2,174.22 

To  Sawn  Veneer  Manufacturing.- 7 951.22 

To  Lumber  Core  Manufacturing 30  4,076.66 


100% 

♦Credit  Material  with  Fuel  Value  of  Refuse  Burned. 

Power 


Charges 

Equipment  Charges $ 1,589.91 

Other  Charges  per  schedule 4,756.35 


Total 


Distribution  of  Charges  (on  basis  of  H.  P.  used) 


To  Rotary  Veneer  Manufacturing 26%  .$  1,650.03 

To  Sliced  Veneer  Manufacturing 12  761.55 

To  Sawn  Veneer  Manufacturing.. 19  1,205.79 

To  Lumber  Manufacturing 5 317.31 

To  Lumber  Core  Manufacturing 18  1,142.33 

To  Plywood  Assembling  and  Finishing 20  1,269.25 


100% 

General  Manufacturing  Expense 


Charges 

Equipment  Charge.s $ 3,212.17 

Rental  Charges 2,797.21 

Steam  Generation  Charges 1,358.89 

Other  Expenses  per  .schedule.. 15,481.29 


Total 


Distribution  of  Charges  (on  basis  of  Man-hours  of  Labor) 


To  Rotary  Veneer  Manufacturing 23% 

To  Sliced  Veneer  Manufacturing 14% 

To  Sawn  Veneer  Manufacturing.. 8% 

To  Lumber  Manufacturing 2% 

To  Lumber  Core  Manufacturing 17% 

To  Plj'wood  Assembling  and  Finishing 36%  $8,225.84 


Departmental  Supplies  (Sand  Paper).. 2,238.00 


100% 

Total  General  Expense 


$13,588.77 


13,588.77 


$ 6,346.26 


$ 6,346.26 


$22,849.56 


$ 5,225.40 
3,198.94 
1,827.96 
456.99 
3,884.43 


10,463.84 


$25,087.56 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Expense 
• Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


39 


Administrative  and  Sales  Expense 


Charges 

Equipment  Charges. $ 353.03 

Rental  Charges 586.25 

Corporation  Taxes.__ 409.00 

Insurance  per  schedule 4,983.60 

Administrative  Expenses  per  schedule.- 42,709.60 

Sales  Expenses  per  schedule 19,536.73 


Total $68,578.21 


Distribution  of  Charges  (on  basis  of  Man-hours  of  Labor) 

To  Rotary  Veneer  Manufacturing 23% 

To  Sliced  Veneer  Manufacturing 14% 

To  Sawn  Veneer  Manufacturing.. 8% 

To  Lumber  Manufacturing 2% 

To  Lumber  Core  Manufacturing 17% 

To  Plywood  Assembling  and  Finishing 36% 


100% 


SUMMARIES 


Rotary  Veneer  Manufacturing 


Annual  Expense 

*Man-hour  Rates 

Equipment  Charges 

$ 3,530.34 

$0,043 

Rental  Charges 

2,771.64 

.034 

Steam  Generation  Charges 

5,027.78 

.061 

Power  Charges 

1,650.03 

.020 

General  Manufacturing  Expense 

5,255.40 

.064 

Total  Manufacturing  Expense 

$18,235.19 

$0,222 

Administrative  and  Sales  Expense..... 

15,772.99 

.193 

Total  Departmental  Expense 

$34,008.18 

$0,415 

♦To  find  these  Man-hour  Rates,  the  Annual  Expense  is 
department,  or  81,945. 

divided  by  the  Man-hours  of 

Labor  for  the  year  in  this 

Sliced  Veneer  Manufacturing 

Annual  Expense 

*Man-hour  Rates 

Equipment  Charges 

$ 1,588.65 

$0,033 

Rental  Charges. 

4,129.34 

.086 

Steam  Generation  Charges 

2474.22 

.045 

Power  Charges 

761.55 

.016 

General  Manufacturing  Expense 

3,198.94 

.067 

Total  Manufacturing  Expense 

$11,852.70 

$0,247 

Administrative  and  Sales  Expense 

9,600.95 

.201 

Total  Departmental  Expense 

$21,453.65 

$0,448 

$15,772.99 

9,600.95 

5,486.26 

1,371.56 

11,658.30 

24,688.15 


$68,578.21 


♦To  find  these  Man-hour  Rates,  the  Annual  Expense  is  divided  by  the  Man-hours  of  Labor  for  the  year  in  this 
department,  or  47,790. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


40 


DIFFERENTIAL  RATE  DETERMINATION  II 


Expense 
Revised  1922 


Sawn  Veneer  Manufacturing 

Annual  Expense 


*Man-hour  Rates 


Equipment  Charges 

Rental  Charges 

Steam  Generation  Charges 

Power  Charges 

General  Manufacturing  Expense 

Total  Manufacturing  Expense 

Administrative  and  Sales  Expense 

Total  Departmental  Expense 


J 1,059.10 

$0,037 

. 1,959.28 

.069 

951.22 

.033 

. 1,205.79 

.042 

. 1,827.96 

.064 

.$  7,003.35 

$0,245 

. 5,486.26 

.193 

$12,489.61 

$0,438 

*To  find  these  Man-hour  Rates,  the  Annual  Expense  is  divided  by  the  Man-hours  of  Labor  for  the  year  in  this 
department,  or  28,483. 


Lumber  Manufacturing 

Annual  Expense 


*Man-hour  Rates 


Equipment  Charges 

Rental  Charges 

Power  Charges 

General  Manufacturing  Expense 

Total  Manufacturing  Expense 


Administrative  and  Sales  Expense 

Total  Departmental  Expense 


.$  529.55 

$0,087 

241.43 

.040 

317.31 

.052 

456.99 

.075 

.$  1,545.28 

$0,254 

. 1,371.56 

.224 

$ 2,916.84 

$0,478 

*To  find  these  Man-hour  Rates,  the  Annual  Expense  is  divided  by  the  Man-hours  of  Labor  for  the  year  in  this 
department,  or  6,094. 


Lumber  Core  Manufacturing 


Annual  Expense 

*Man-Hour  Rates 

Equipment  Charges 

Rental  Charges 

$ 2,824.27 

$0,048 

2,005.25 

.033 

Steam  Generation  Charges 

4,076.66 

.067 

Power  Charges 

1,142.33 

.019 

General  Manufacturing  Expense 

3,884.43 

.064 

Total  Manufacturing  Expense.-  

$13,932.94 

$0,231 

Administrative  and  Sales  Expense 

11,658.30 

.193 

Total  Departmental  Expense 

$25,591.24 

$0,424 

*To  find  these  Man-hour  Rates,  the  Annual  Expense  is 
department,  or  60,370. 

divided  by  the  Man-hours  of 

Labor  for  the  year  in  this 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


II 


Expbnsb 
Revised  1922 


DIFFERENTIAL  RATE  DETERMINATION 


41 


Plywood  Assembling  and  Finishing 

Annual  Expense  *Man-hour  Rates 


Equipment  Charges 

Rental  Charges 

Power  Charges 

General  Manufacturing  Expense. 

Total  Manufacturing  Expense.... 

Administrative  and  Sales  Expense 

Total  Departmental  Expense. 


.$  3,883.37 

$0,031 

. 5,471.69 

.043 

. 1,269.25 

.010 

10,463.84 

.083 

.$21,088.15 

$0,167 

. 24,688.15 

.194 

$45,776.30 

$0,361 

*To  find  these  Man-hour  Hates,  the  Annual  Expense  is  divided  by  the  Man-hours  of  Labor  for  the  year  in  this 
department,  or  126,998. 


PROOF 


Interest  on  Investment  in 

Land $ 8,000.00 

Buildings..- 116,000.00 

Sprinkler  System 16,000.00 

Power  Equipment 7,000.00 

Auto  Trucks 3,400.00 


$150,400.00 


Maintenance  Charges  on 


Buildings. $1 16,000.00 

Kilns  (Buildings  only) 4,500.00 

Sprinkler  System 16,000.00 

Auto  Trucks 3,400.00 

Other  Equipment 113,035.00 

Other  Expenses  per  schedule $112,569.30 

Deduct  actual  Repairs  per  schedule 8,852.73 


@ 

6%$ 

9,024.00 

@ 

9% 

10,440.00 

@ 10% 

450.00 

@ 

5% 

800.00 

@25% 

850.00 

@ 15% 

16,955.25 

103,716.57 

Total 


$142,235.82 


Rotary  Veneer  Manufacturing 

@ M.  H.  Rates 

Actual 

81,945  Man-hours  @ $0.415 

$ 34,007.18 

$34,008.18 

Sliced  Veneer  Manufacturing 

47,790  Man-hours  @ $0.448 

21,409.92 

21,453.65 

Sawn  Veneer  Manufacturing 

28,483  Man-hours  @ $0.438 

12,475.55 

12,489.61 

Lumber  Manufacturing 

6,094  Man-hours  @ $0.478 

2,912.93 

2,916.84 

Lumber  Core  Manufacturing 

60,370  Man-hours  @ $0.424 

25,596.88 

25,591.24 

Plywood  Assembling  and  Finishing 

126,998  Man-hours  @ $0.361 

45,846.28 

45,776.30 

351,680 

Absorbed  in  decimal  extensions.. 

142,248.74 

12.92 

$142,235.82 

$142,235.82 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


42 


DIFFERENTIAL  RATE  DETERMINATION  II.  ReviYed'' 1922 


The  foregoing  analysis  is  based  upon  operating  the  plant  full  time  with  a full 
force,  and  consequently  the  resulting  rates  are  lower  than  they  would  be  under 
only  ordinary  normal  operation.  To  use  these  minimum  rates  in  costing  would 
be  to  disregard  contingencies  such  as  unavoidable  shut-downs  and  decreased 
production  due  to  falling  off  in  orders.  To  “play  safe”  it  is  necessary  to  take 
low  production  as  well  as  high  production  periods  into  consideration  and  de- 
termine upon  figures  which  represent  actual  operation  over  a period  of  years. 
While  this  is  a matter  for  individual  analysis  and  decision,  the  experiences  and 
practices  of  other  are  worth  noting. 

Members  of  the  Plywood  Manufacturers  Association  were  recently  asked  this 
question:  “In  the  light  of  your  experience, what  per  cent  of  full  capacity  produc- 
tion do  you  consider  representative  of  the  average  plant  operation  over  a period  of 
years?”  ■■ 

The  following  is  a synopsis  of  the  replies  received. 

2 consider  90  % of  “capacity”  as  representative  of  normal. 

1 considers  85  % of  “capacity”  as  representative  of  normal. 

4 consider  80  % of  “capacity”  as  representative  of  normal. 

5 consider  75  % of  “capacity”  as  representative  of  normal. 

1 considers  73  % of  “capacity”  as  representative  of  normal. 

2 consider  70  % of  “capacity”  as  representative  of  normal. 

1 considers  66%%  of  “capacity”  as  representative  of  normal. 

1 considers  65  % of  “capacity”  as  representative  of  normal. 

An  average  of  the  above  experiences  gives  a composite  rate  of  about  77%. 

The  natural  tendency,  however,  is  to  over-rate  operation  rather  than  to 
under-estimate  it,  and  as  most  of  the  percentages  given  above  are  based  upon 
recollection  and  judgment  and  only  a few  upon  actual  records,  the  average  is  no 
doubt  high  to  say  the  least.  Indeed,  experienced  industrial  engineers  are  in- 
clined to  regard  average  normal  operation  as  nearer  66%  per  cent  of  capacity. 

As  the  hourly  Expense  rates  must  be  in  inverse  ratio  to  the  rate  of  operation, 
it  is  necessary  to  take,  on  these  basis,  or  respectively  of  the  rates  estab- 
lished for  full  operation.  Therefore,  one-third  or  one-half  should  be  added  to 
the  rates  found  in  the  above  example  to  give  “recommended  rates,”  as  follows: 


75%  Operation 

Rotary  Veneer  Manufacturing $0.56  per  man-hour. 

Sliced  Veneer  Manufacturing 0.60  per  man-hour. 

Sawn  Veneer  Manufacturing 0.59  per  man-hour. 

Lumber  Manufacturing 0.64  per  man-hour. 

Lumber  Core  Manufacturing 0.57  per  man-hour. 

Plywood  Assembling  and  Finishing,...  0.48  per  man-hour. 


66%%  Operation 
$0.62  per  man-hour 
0.67  per  man-hour 
0.66  per  man-hour 
0.72  per  man-hour 
0.64  per  man-hour 
0.54  per  man-hour 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


III. 


Material 
Revised  1922 


WHAT  CONSTITUTES  MATERIAL 


43 


MATERIAL 


Every  Plywood  manufacturer  is  in  business  to  make  money.  To  make 
money  a business  must  take  in  more  than  it  pays  out.  Income  is  through  the 
medium  of  sales  and  before  one  can  be  assured  that  receipts  will  exceed  expendit- 
ures, these  expenditures  must  be  accurately  apportioned  to  product  and 
standards  of  selling  prices  determined  upon  same. 

In  Plywood  manufacture,  Material  costs  average  over  three  times  as  much  as 
either  labor  or  expense.  It  is  of  major  importance  that  this  cost  element  of  mate- 
rial be  correctly  determined  and  evaluated  in  setting  up  costs. 

The  method  of  collecting  material  costs  is  of  minor  importance,  but  it  is  very 
essential  that  the  actual  facts,  whatever  they  are,  be  accurately  determined.  No 
amount  of  accounting  will  change  the  facts  as  they  exist.  The  first  step  in  cost- 
ing the  material  in  product  is  to  determine  just  what  constitutes  “Material.” 
In  other  words,  to  draw  the  line  between  “Material”  and  supplies,  the  latter 
being  an  element  of  “Expense.”  This  is  especially  necessary  among  Associa- 
tion members,  that  a true  comparison  of  costs  may  be  had. 

What  constitutes  “Material?”  In  general  it  might  be  said  that  under 
this  head  should  be  classed  all  materials  which  are  in  the  finished  and  packed 
product,  the  waste  produced  in  manufacture,  and  all  material  directly  consumed 
in  producing  each  unit.  Thus,  while  tape  does  not  constitute  a component 
part  of  most  finished  panels,  it  is  consumed  in  production  and  varies  in  quantity 
with  different  products  and  should  be  included  in  the  “material”  cost.  The 
same  principle  applies  to  newspapers  used  in  some  plants  as  cauls  in  laying  up. 

Sand  paper  is  used  up  in  the  course  of  the  sanding  process  but  not  in  the 
initial  use  and  may  be  classed  as  a department  supply.  By  being  charged  to 
the  ‘ ‘ expense  ’ ’ of  the  finishing  department  every  panel  which  goes  through  that 
department  absorbs  a part  of  the  cost  of  sand  paper. 

Crating  lumber,  nails,  steel  strapping,  wrapping  paper  and  twine  for  pack- 
ing are  often  treated  as  shipping  room  supplies  but  are  properly  classed  with 
‘ ‘ material  ’ ’ and  may  be  more  accurately  distributed  to  product  under  this  head. 

Classifying  material  under  the  three  recognized  commercial  divisions  of 
Veneers,  Lumber  Cores,  and  Plywood,  we  have  the  following  schedule: 


Veneers 

Logs 


Lumber  Cores 


Lumber 

Glue 


Veneers 
Lumber  Cores 
Glue 
Tape 

Paper  Cauls 
Packing  Materials 


Plywood 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


44 


PRICING 


III. 


Material 
Revised  1922 


PRICING 


Two  methods  of  pricing  raw  materials  are  followed  in  the  Plywood  industry 
in  common  with  others,  but  in  actual  practice  only  one  can  logically  be  used  with 
any  degree  of  success  in  determining  the  proper  selling  prices  for  finished  product. 
In  fact  this  result  is  inevitable  regardless  of  any  costing  principles  theoretically 
observed. 

The  first  method  is  to  price  at  actual  cost.  This  is  possible  only  where  such 
records  are  maintained  as  will  identify  each  lot  of  purchases  from  the  time  it  is 
received  until  it  leaves  the  plant  in  the  finished  product.  In  theory  this  method 
appears  on  the  surface  to  be  ideal  but  those  who  have  attempted  to  put  it  into 
every  day  practice  will  testify  to  the  insurmountable  difficulties  which  beset  its 
workings,  to  say  nothing  of  the  amount  of  clerical  labor  involved. 

In  costing  manufactured  veneers  by  this  method,  not  only  each  log 
must  be  given  some  mark  which  will  identify  it  as  belonging  to  a particular  pur- 
chase, but  if  logs  from  two  or  more  lots  are  cut  in  the  same  day  it  is  necessary 
that  the  separate  blocks  cut  also  carry  this  mark  else  their  identity  will  be  lost 
when  they  are  put  through  the  vats.  Logs,  and  even  parts  of  logs,  which 
are  not  suited  for  veneers  are  often  culled  out  and  sawn  into  lumber,  some 
of  which  finds  its  way  into  piles  used  eventually  for  cores  and  some  goes  into 
packing  crates.  Obviously,  if  not  beyond  the  possibility  of  human  ingenuity  to 
maintain  a correct  record  under  such  conditions  (which  are  not  uncommon),  it  is 
safe  to  say  that  no  one  having  such  a system  in  vogue  feels  that  his  records  are  very 
reliable  when  it  comes  to  the  point  of  laying  his  finger  upon  an  order  of  finished 
panels  and  saying  “this  order  was  manufactured  from  such  purchase  lots  of 
veneers  and  lumber,  ’ ’ or  “such  a lot  of  lumber  went  into  such  and  such  orders.  ’ ’ 

Again,  looking  at  it  from  the  standpoint  of  the  purchaser  of  finished  product, 
it  is  illogical  to  price  the  raw  materials  in  such  product  at  actual  purchase  prices, 
because  of  the  fluctuations  in  the  market  between  the  time  of  purchase  and  the 
time  of  sale,  and  the  wide  differences  in  ages  of  the  stocks  of  competing  manu- 
facturers. 

This  fact  has  been  emphasized  by  conditions  brought  about  by  the  war.  Those 
manufacturers  who  were  so  fortunate  as  to  have  laid  in  a large  stock  of  raw 
material  at  ante-bellum  prices  were  not  expected  by  their  customers  to  sell  the 
finished  product  made  from  this  cheap  material  on  a basis  of  such  costs  when 
the  market  rose.  If  any  producer  were  so  foolish  as  to  follow  this  principle  at  that 
time,  he  must  find  himself  in  the  “heads  I lose,  tails  you'wdn'’  class,  when  the 
pendulum  swings  in  the  opposite  direction,  as  the  purchaser  who  will  pay  for 
product  made  from  war-time  stock  at  prices  based  upon  actual  costs  has  not  yet 
been  heard  from. 

Disagreements  among  competitive  manufacturers  as  to  the  cost  of  product 
are  often  traceable  to  this  cause,  as  one  may  be  using  the  invoice  prices  of  six 
months  previous  while  the  other  is  figuring  on  current  market. 

The  latter  method — that  of  using  current  market  prices, — is  the  only  one 
which  is  recognized  by  the  customer  in  a declining  market  in  making  his  pur- 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


III.  Material 


Revised  1922 


VALUE  VARIATIONS 


45 


chases  and  should  be  followe^y  the  manufacturer  in  a rising  market.  Current 
costs  make  the  market  ' 


This  being  true,  and  the  function  of  costing  in  which  the  Association  is  pri- 
marily interested  being  to  provide  the  proper  basis  for  pricing,  it  is  logical  to  follow 
the  same  rule  in  costing  which  forms  the  unwritten  law  of  the  market.  If  this 
method  is  followed  by  all  plywood  manufacturers,  there  will  be  a decided 
tendency  toward  more  uniform  pricing,  and  a consequent  stabilizing  of  the  mar- 
ket. This  is  the  goal  of  the  whole  “Costing”  program  of  the  Association  and 
it  cannot  be  attained  until  this  principle  is  recognized  in  actual  practice  by  every 
member. 

The  principal  objection  which  is  raised  to  using  current  market  quotations 
as  the  basis  of  costing  is  that  such  practice  makes  it  difficult  to  check  cost  by  the 
figures  shown  by  the  general  accounts — in  other  words  to  strike  a balance.  Section 
V on  “Accounting”  will  give  a clear  portrayal  of  how  this  feature  is  easily  and 
simply  adjusted  in  a logical  and  accurate  way  without  disarranging  establish- 
ed accounting  systems  or  entailing  complicated  and  laborious  clerical  detail. 

As  long  as  it  is  attempted  to  put  the  principle  of  using  invoice  costs  into 
practice,  the  variations  in  material  costs  will  be  measured  largely  by  the  diff- 
erences in  ages  of  the  respective  stocks,  and  our  endeavor  to  reach  the  goal  of  a 
stabilized  market  will  be  frustrated  to  that  extent. 


VALUE  VARIATIONS 

A fact  commonly  overlooked  by  manufacturers  in  all  lines  who  buy  raw 
material  which  is  afterward  sorted  for  grades  and  sizes,  is  that  while  a common  or 
average  price  is  paid  for  an  entire  lot,  the  purchase  is  really  a collection  of  materials 
of  varying  values.  For  instance,  in  buying  mahogany  veneers,  several  logs  may 
be  purchased  at  a flat  price  but  in  drawing  on  this  stock  for  orders,  a selection 
is  made  both  for  figure  and  size,  and  a corresponding  differentiation  is  made  in 
pricing  the  finished  product  although  an  actual  invoice  cost  would  show  no  differ- 
ences in  material  values.  It  is  true  that  the  so  called  “figured  woods”  are 
usually  bought  from  sample  and  paid  for  according  to  quality,  but  even  where 
this  is  done  and  a corresponding  charge  made  into  the  costs,  no  I'ecognition  is 
usually  made  of  the  fact  that  the  large  pieces  of  veneers  cut  from  a certain  log 
are  worth  more  than  the  small  pieces. 

However,  if  the  manufacturer  who  sold  the  material  were  asked  for  quota- 
tions on  veneers  from  which  a lot  of  selected  large  sizes  could  be  cut  and  a sep- 
arate quotation  on  veneers  to  be  cut  into  small  sizes,  quite  a difference  in  values 
would  appear. 

The  following  extract  from  a report  on  “Variation  in  Costing  Principles” 
presented  by  W.  L.  Churchill  at  a meeting  of  the  Plywood  Manufacturers  Asso- 
ciation, March  9,  1920  and  adopted  by  it  is  cited. 

MATERIAL  COSTS 

In  computing  the  costs  of  veneers  and  veneer  products,  the  value  of  materials  entering 
into  such  products,  as  a rule,  are  very  much  greater  than  the  labor  element  of  such  costs. 

As  a rule  the  larger  the  article  produced,  the  smaller  the  ratio  of  labor  to  total  costand 
conversely,  the  smaller  the  article  the  greater  the  proportion  of  labor  costs. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


46 


VALUE  VARIATIONS 


Material 
• Revised  1922 


This  is  especially  true  to  veneers  and  veneer  panels,  tops  and  other  glued  up  products  of 
veneer  plants. 

Despite  the  fact  that  the  larger  the  panel  or  top  of  a given  construction,  the  less  its  labor 
cost,  the  Association  has  adopted  the  principle  that  the  value  to  customers  increases  per  square 
foot  with  increase  in  sizes  of  such  panels  and  tops. 

This  means  that  the  material  value  in  veneer  products  increases  with  increased  dimensions 
and  at  greater  ratio  than  the  reduction  in  labor  costs. 

A panel  84"  x 40"  co.sts  much  less  for  labor  per  square  foot  than  a similar  panel  12"  x 12". 
The  selling  price  for  the  larger  panel  is  usually  very  much  higher  per  square  foot  than  the  small- 
er one,  despite  the  fact  of  its  much  lower  labor  cost,  thus  recognizing  that  the  material  must  be 
worth  a great  deal  more  per  square  foot. 

Few  manufacturers  attempt  to  place  different  valuations  on  the  material  used  in  different 
sizes  of  the  same  construction. 

Material  costs,  as  a rule,  are  computed  at  the  same  rate  per  square  foot  regardless  of  the 
sizes  of  the  resultant  product. 

A few  manufacturers  arbitrarily  deduct  from  purchase  price  a deffnite  amount  per  square 
foot  to  arrive  at  a valuation  on  what  they  consider  by-product  that  would  otherwise  be  waste. 

Even  in  this  latter  practice,  there  is  lack  of  uniformity,  thus  making  it  possible  for  disastrous 
competition,  due  to  differences  in  computation  of  costs  instead  of  actual  differences  in  such  costs. 

To  enable  all  members  to  arrive  at  comparable  costs  in  different  sizes  of  the  same  construction 
on  same  grades  of  product,  all  should  use  a similar  rule  or  principle  in  determining  the  different 
material  values  occasioned  by  differences  in  sizes  of  the  resultant  period. 

Logs  bought  at  $50.00  per  M ft.  and  cut  into  veneers  24"  long  will  not  bring  as  large  a return 
to  the  veneer  manufacturer  as  if  cut  into  85"  lengths,  even  though  grading  the  same  in  quality. 

Quarter-sawed  1/20"  oak  is  purchased  at  prices  ranging  from  $50.00  for  6"-9"  widths  to 
$75.00  for  12"  widths.  To  select  flitches  that  will  make  60"  panels  without  blemish  with 
good  figure  is  much  more  difficult  than  to  find  suitable  stock  for  24"  panels.  Consequent!)',  the 
stock  used  for  60"  panels  must  be  regarded  as  worth  more  than  the  market  price  given  above. 

Since  the  buying  public  indicates  that  the  longer  the  material  of  a given  grade  or  quality, 
the  more  they  are  wilfing  to  pay  for  it,  this  difference  in  material  values  should  be  recognized  in 
determining  costs. 

It  is  not  merely  a question  of  having  costs  justify  the  variable  minimum  cost  prices  estab- 
lished by  the  Association.  The  public  automatically  indicates  differences  in  value  by  its  willing- 
ness to  pay  more  for  the  larger  sizes  and  its  insistence  on  smaller  sizes  being  sold  for  lower  price 
per  1,000  square  feet. 

The  Association  should  adopt  a rule  or  principle  that  will  enable  all  members  to  compute  in 
comparable  manner  the  material  value  of  the  various  sizes  of  product  turned  out. 

As  a suggestion  for  such  a rule,  the  accompanying  chart  is  offered  in  the  hope  that  it  will 
enable  the  Association  to  at  once  put  into  effect  a means  for  helping  all  members  to  remedy  the 
existing  difficulty  in  determining  material  values  in  their  various  sizes  of  product. 

The  chart  represents  the  range  in  prices  from  12"  or  less  in  length  to  108"  in  length.  The 
scale  was  determined  after  collecting  and  plotting  prices  that  had  to  be  paid  for  regular  log  runs 
and  for  selected  lengths  of  clear  material;  prices  at  which  droppings  and  short  lengths  of  similar 
material  were  also  plotted. 

After  collecting  the  figures  on  various  veneers  such  as  quarter-sawed  and  rotary  oaks,  birch, 
walnut,  mahogany,  etc.,  and  on  lumber  used  for  cores,  it  was  found  that  a line  drawn  through 
the  approximate  prices  tended  to  focus  at  one  general  point  equal  to  minus  thirty  inches. 


Use  of  Chart  for  Determining  Values  of  Regular  Stock. 

In  using  the  chart  48"  was  established  as  the  basis  length  for  regular  priced  materials.  This 
means  that  if  1 /20"  oak  is  quoted  at  $50.00  per  1,000  square  feet,  that  48"  is  the  average  length 
of  material  expected  to  be  obtained  from  it. 

Placing  a point  where  the  48"  vertical  lines  cross  the  50  horizontal  line  and  then  ruling  a 
straight  line  from  minus  30"  through  this  point  to  the  vertical  108"  line,  enables  the  value  per 
1,000  square  feet  for  any  length  to  be  determined. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Material 
• Revised  1922 


VALUE  VARIATIONS 


47 


Value  of  Selected  Stock. 

If  stock  is  purchased  selected  to  average  60"  length  at  $75.00  a point  where  the  60  vertical 
hne  crosses  the  75  horizontal  line  is  made  and  a line  ruled  from  30  minus  through  this  point.  The 
value  of  any  length  of  this  stock  is  readily  indicated. 

Value  of  Short  Stock. 

Short  stock  purchased  to  average  24"  in  length  at  $15.00  a point  is  placed  where  the  ver- 
tical 24  line  crosses  the  horizontal  15  line  and  a line  from  thirty  minus  ruled  through  this  point 
will  give  value  of  the  different  lengths  of  this  material. 

General  Comment  on  Use  of  Chart. 

This  chart  can  be  used  for  any  grade  of  material,  it  only  being  necessary  to  know  its  purchase 
price  or  average  value  and  whether  regular,  selected  or  cull,  or  any  other  classification  may  be 
added. 

The  simphcity  with  which  the  rule  can  be  applied  commends  itself,  and  if  generally  used 
would  clear  up  many  misunderstandings  occasioned  by  variations  in  valuation  procedure  of 
different  members  and  by  using  a common  valuation  for  all  sizes. 


FIQ.  4 RELATION  BETWEEN  AVERAGE  PRICE  OF  VENEER  IN  DOLLARS  PER  M SQUARE  FEET 
AND  LENGTH  OF  VENEER  IN  INCHES 

To  determine  the  value  of  any  length  of  veneer  by  means  of  the  chart,  take  the  price 
of  the  purchased  material  and  refer  to  the  vertical  line  corresponding  to  grade  and  the 
horizontal  line  corresponding  to  price.  Next  draw  a sloping  line  through  the  inter- 
section of  the  grade  line  and  value  lines  with  a focal  point  equal  to  30  in.  to  the  left 
of  the  zero  on  the  horizontal  scale.  Along  this  line  will  be  found  the  values  of  all 
lengths  of  stock  obtained  from  this  material. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


48 


VALUE  VARIATIONS,  BY-PRODUCTS 


III. 


Material 
Revised  1922 


What  has  been  said  with  reference  to  the  material  cost  factors  of  Plywood 
applies  quite  as  truly  to  the  manufacture  of  Rotary  Veneer.  Veneers  of  the  same 
variety  bring  various  prices  depending  upon  the  character  and  size  of  the  sheets. 
Several  lots  of  veneer  of  as  many  different  values  may  be  cut  from  a single  lot  of  logs 
bought  at  a flat  price.  Not  only  should  the  correct  prices  be  realized  for  the 
veneers  but  the  logs  from  which  they  were  cut  should  be  evaluated  fairly  when 
charged  into  the  cost.  The  setting  of  a correct  value  upon  the  logs  will  also 
show  the  real  yield  in  dollars  and  cents  and  so  determine  whether  the  purchase 
was  well  made,  and  whether  the  logs  are  being  advantageously  cut. 

The  following  illustration  is  taken  from  an  article  recently  contributed  to 
“Management  Engineering’’  by  Mr.  Churchill. 

As  illustrating  the  wide  range  of  possible  values  between  different  logs  the  following  examples 
are  quoted: 

Log  No.  1 Containing  1000  Board  Feet  at  $40 


300  ft.  No.  1 Veneers  at  $150 $45 

100  “ “ 3 “ “ 60 6 

100  “ “ 5 “ “ 20 2 

250  “ Crating  “ 12 3 

250  “ Fuel  “ 8 : 2 

1,000  ft $58 

Log  No.  2 Containi.ng  1000  Board  Feet  at  $40 

100  ft.  No.  1 Veneers  at  $150.. $15 

200  “ “ 3 “ “ 60 12 

200  ““  5 “ “ 20,. 4 

250  “ Crating  “ 12 3 

250  “ Fuel  “ 8 2 

1,000  ft.  $36 


BY-PRODUCTS 

Where  culls  or  waste  from  material  purchases  are  utilized  in  any  way  by 
which  some  value  is  directly  or  indirectly  realized,  such  material  value  should  be 
credited  to  the  cost  of  that  material.  In  manufacturing  rotary  veneers,  the 
centers  of  logs  remaining  after  the  veneer  has  been  cut  are  usually  sawn  into 
crating  material  and  sometimes  a portion  is  converted  into  lumber  used  for  cores. 
A credit  to  the  logs  should  be  made  which  will  represent  the  material  value  of  the 
by-product.  By  “material  value’  ’ is  meant  the  market  value  of  the  by-product 
less  conversion  cost  and  profit. 

The  same  rule  applies  to  refuse  burned  under  boilers  which  takes  the  place 
of  coal  or  other  fuel  commonly  used  in  that  locality  for  the  production  of  steam. 
Steam  Heat  and  Power  should  be  charged  with  the  fuel  value  of  this  waste  and 
a corresponding  credit  made  to  “Material.’’ 

In  determining  the  price  at  which  to  charge  material  into  cost,  freight, 
express,  etc.,  on  same  should  be  included  as  a part  of  the  material  cost,  and  not 
charged  into  “Expense.” 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Material 
• Revised  1922 


YIELD 


49 


YIELD  - WASTE 

In  manufacturing  either  one  of  the  component  parts  of  plywood — veneers  or 
lumber  cores — or  the  plywood  itself,  a very  considerable  proportion  of  the  raw 
material  is  rejected  as  refuse,  and  it  is  very  important  that  a careful  determination 
be  made  of  the  proportion  of  finished  product  yielded  by  the  raw  materials  from 
which  it  is  constructed  if  the  real  cost  is  to  be  computed.  This  will  vary  of  course 
with  the  grades  of  materials  purchased  and  the  quality  of  output.  A careful 
study  of  the  subject  will  frequently  show  that  "cheap”  grades  of  stock  are  not 
always  the  most  advantageous  buys,  and  in  fact  it  is  possible  to  establish  definite 
standards  of  relative  quality  and  price  to  serve  as  reliable  guides  in  purchasing. 


YIELD  BASED  UPON  GROSS  SIZES 

As  pointed  out  in  Section  I,  the  computation  of  waste  made  in  the  final  trim- 
ming of  panels  to  size  should  be- made  a separate  accounting,  as  this  element 
depends  solely  upon  the  standards  set  for  trimming  allowances  and  does  not  vary 
with  the  character,  quality  or  thickness  of  the  product,  but  it  does  vary  with 
size  and  shape.  Where  the  product  of  a plant  is  fairly  uniform  as  to  shape  and 
area  per  unit  or  where  units  of  varying  sizes  and  shapes  are  sold  in  .sets  such  as 
those  for  pianos  or  phonographs,  this  feature  of  material  costing  does  not  consti- 
tute a serious  factor,  but  the  occasion  is  likley  to  arise  at  any  time  and  with  those 
whose  product  is  varied  it  is  a very  important  item. 

The  following  illustration  is  based  upon  a trimming  allowance  of  one  inch 
width  and  length: 


Size  before  trimming 
Size  after  trimming 
Trimming  Waste 


13"xl3"— Area  169  Sq.  In. 

12"xl2"— Area  144  Sq.  In. 

25  Sq.  In. — 17.3%  of  net  size 


Size  before  trimming  49"x61" — -Area  2989  Sq.  In. 

Size  after  trimming  48"x60" — Area  2880  Sq.  In. 

109  Sq.  In. — 3.8%  of  net  size 
Difference  in  Trimming  Waste  13.5% 


Assuming  that  the  average  size  of  panels  will  have  a trimming  waste  of  8% 
the  error  in  using  the  average  in  estimating  the  cost  of  the  12x12  panels  would 
amount  to  9.3%  which  at  $100.00  per  thousand  for  material  would  make  a cost 
miscalculation  against  the  manufacturer  and  in  favor  of  the  customer  of  $9.30  per 
thousand  feet  of  panels. 

To  further  emphasize  the  error  in  using  average  percentages  for  waste  based 
upon  net  sizes,  the  following  illustration  is  given  showing  the  influence  of  pro- 
portion of  width  to  length.  It  will  be  noted  that  the  two  pieces  of  plywood  in 
the  example  have  exactly  the  same  net  areas,  but  that  the  bed  rail,  on  account  of 
its  shape  suffers  4.5%  more  waste  in  trimming. 


Bed  rail  after  trimming 9"x68"  594” 

Panel  “ “ 23^"x25”  .594” 

No  difference  in  net  area 

Bed  rail  before  trimming 10”x67”  670” 

Panel  “ “ 24^"x26”  643” 

Difference  in  gross  area  4.5% 27” 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


50 


YIELD 


Matbuial 
• Revised  1922 


The  proportion  of  waste  although  varying  with  different  materials,  is  fairly 
uniform  for  all  sizes  and  shapes  up  to  the  trimming  operation.  Logically,  gross 
dimensions — size  before  final  trimming — should  constitute  the  basis  for  costs. 
It  is  fair  to  all  and  its  adoption  would  be  another  step  toward  the  goal  of  a 
stabilized  plywood  market. 

Attention  is  also  called  to  the  fact  that  the  percentage  of  yield  or  waste 
should  be  figured  on  the  basis  of  gross  dimensions  and  not  on  net  sizes.  This 
is  another  variation  in  practice  which  occasions  an  appearance  of  difference  in 
cost,  even  though  the  actual  costs  may  closely  parallel.  It  should  also  be 
noted  that  if  1,000  ft.  of  material  yield  720  ft.  of  gross  dimension  product,  the 
percentage  of  waste  to  be  added  to  gross  area  is  not  or  28%,  but  m or  39%. 
(See  footnote). 

Whatever  has  been  said  with  reference  to  the  yield  or  waste  in  woods  used 
in  plywood,  applies  with  equal  force  to  glue,  tape  and  paper  cauls. 

It  is  essential  to  uniform  costing  that  similar  methods  be  followed  in  all 
fundamentals,  and  the  following  ba.ses  for  the  determination  of  yield  are  suggested 
for  common  observance  among  members  of  the  industry: 


Veneers 

Raw  Material 

Feet  of  logs  purchased 

Lumber  Cores 

Feet  of  lumber  purchased 
Pounds  of  Glue  used 

Plywood 

Sq.  ft.  Face  Veneers  used 
Sq.  ft.  Backs  used 
Sq.  ft.  Cross  Bands  used 
Sq.  ft.  Lumber  Cores  used 
Lin.  ft.  or  lbs.  of  Tape  used 
Waste  paper  Cauls  used 


Yield 

Board  Feet  of  Dry  Veneers  obtained 


Feet  of  finished  cores  produced. 
Board  feet  of  cores  glued. 


Sq.  ft.  (Gross  dimensions)  in  Plywood  produced 

it  it  ((  ((  (i  (t 


a 


((  u 


ti 


a a 


u 


a <i 


n 


of  Veneer  taped 
of  Plywood  produced. 


Where  the  determination  of  the  amount  of  material  used  is  made  by  calcu- 
lation rather  than  through  the  medium  of  records  of  actual  issues  from  stock,  care 
should  be  exercised  to  see  that  the  allowance  made  for  trimming  conforms  to 
actual  practice.  For  example,  an  order  calling  for  panels  21"  x 36"  would  ordi- 
narilybe  figured  on  the  basis  of  22"x37"  gross  dimensions.  The  face  stock  select- 
ed for  the  job  may  be  of  such  widths  that  it  is  impossible  to  keep  within  the  limit 
specified  and  that  the  actual  material  used  will  exceed  the  estimate  by  a substan- 
tial margin.  Lack  of  care  in  the  selection  of  cross  bands  and  backs  or  the  sizes 
in  stock  may  cause  a similar  over-measurement,  and  altogether  the  actual  waste 
in  trimming  will  often  be  found  to  considerably  over-reach  the  theoretical 
proportion. 


Those  who  collect  costs  on  material  actually  used  on  orders  automatically  solve  the  problem  of  waste  calcu- 
lation but  care  should  be  observed  in  estimating  on  new  business  that  the  errors  cited  above  are  not  made. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


IV. 


Labor 

Revised  1922 


WHAT  CONSTITUTES  LABOR 


51 


LABOR 

To  produce  a manufactured  article  there  must  be  a place  to  work,  tools 
to  work  with,  material  to  work  upon,  and,  last  but  not  least,  persons  to  do  the 
work.  We  have  discussed  the  first  two  factors  under  “Expense”  and  have  con- 
sidered the  subject  of  “Material”  and  now  come  to  a discussion  of  that  part  of 
the  cost  which  links  the  other  two  together  and  converts  raw  materials  into 
finished  product. 


Labor  would  seem  to  be  one  of  the  simplest  factors  to  determine  and  account 
for  and  yet  appreciable  differences  in  the  methods  of  treatment  observed  by 
respective  manufacturers  materially  affect  the  conclusions  reached  regarding 
Labor  costs  although  the  real  cost  may  be  identical. 

• 

What  Constitutes  “Labor”?  It  is  the  practice  of  many  to  figure  as 
“Labor”  only  the  time  expended  by  those  whose  time  can  be  readily  apportioned 
to  the  article  produced;  that  is,  the  so-called  “Direct  Labor”  (sometimes  termed 
“Productive  Labor”  although  all  labor  is  productive),  figuring  the  cost  of 
Indirect  Labor  (such  as  foremen,  millwrights,  truckers,  etc.,  whose  time  cannot 
be  readily  apportioned  to  each  lot  or  article  produced)  in  Expense  or  “Burden.” 
Others  ratio  Indirect  Labor  to  Direct  Labor  and  include  all  under  one  head  as 
“Labor.”  This  is  the  practice  recommended  for  the  Plywood  Industry  as 
explained  in  Section  11.  In  this  industry  this  difference  in  practice  may  easily 
make  a difference  of  from  ten  to  twenty-five  percent  in  Labor  costs  and,  in 
extreme  cases,  over  sixty  percent.  It  can  readily  be  appreciated,  therefore, 
how  misleading  any  conclusions  may  be  which  are  reached  by  a comparison  of 
Labor  costs  between  those  who  follow  different  practices.  To  illustrate:  One  of 
our  members  has  a “Yard  and  Kiln  Department”  in  which  there  are  11  direct 
laborers  at  a yearly  wage  of  $14,750.00.  In  that  department,  there  are  also  a 
foreman  and  one  general  laborer  receiving  $2,980.00  and  the  millwright  spends 
10%  of  his  time  there  at  $1,800.00  a year,  making  a total  Indirect  Labor  cost  of 
$3,160.00  per  annum  or  21.4%  of  Direct  Labor.  The  average  wage  of  the 
Direct  Labor  is  $0,506  per  hour.  If  this  member  were  to  collect  the  cost  of 
departmental  labor  on  product  turned  out  in  a week  of  55  hours  and  were  to 
consider  the  Direct  Labor  only,  the  cost  shown  would  be  11  men  at  55  hours  each 
at  $0,506  per  hour  or  $306.13.  If  on  the  other  hand  he  were  to  include  the 
Indirect  Labor  the  labor  cost  would  be  $371.64  or  21.4%  greater.  This  dif- 
ference alone  in  practice  accounts  for  many  of  the  arguments  and  misunder- 
standings among  members  of  the  industry  regarding  proper  Labor  costs.  As 
stated  before,  real  costs  may  be  identical  and  yet  radical  differences  appear 
between  the  respective  factors,  owing  to  such  difference  in  accounting  principles. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


52 


LABOR,  INDIRECT  AND  DIRECT 


Labob 

• Revised  1922 


“INDIRECT”  AND  “DIRECT”  LABOR 

It  is  therefore  important  at  the  outset  to  determine  just  what  constitutes 
“Labor.”  We  may  define  the  term  by  stating  that  it  includes  all  plant  employees 
except  the  general  superintendent,  assistant  superintendent  and  clerks.  Theo- 
retically there  should  be  some  exceptions  to  this  rule  and  it  may  be  rightly  held 
that  the  wages  of  the  firemen  and  other  employes  of  the  boiler  plant  should  be 
charged  to  Steam  Generation;  the  engineer,  oilers,  etc.,  to  Power;  the  mill- 
wrights and  mechanics  to  Maintenance,  and  the  watchmen  to  Administrative 
Expense.  However,  accounting  is  simplified  and  the  same  results  are  obtained 
by  apportioning  the  wages  of  these  persons  to  departments  or  products  respec- 
tively according  to  the  amount  of  steam  or  power  consumed,  repairs  required 
and  territory  traversed.  By  treating  General  Indirect  Labor  in  this  way — 
that  is  by  including  it  with  Department  Labor — the  costing  practice  will  tally 
with  the  logical  and  recommended  practice  of  including  all  general  salaries 
in  one  account  charged  to  Expense,  and  all  wages,  including  department 
foremen  and  all  general  and  departmental  labor,  in  the  factory  payroll  which  is 
charged  to  Labor  and  balanced  with  Production  as  shown  by  separate  cost 
records.  This  feature  is  more  fully  treated  in  Section  V on  “Accounting.” 


Any  methods  used  for  finding  the  cost  of  Labor  expended  in  manufacturing 
must  begin  with  the  Direct  Labor  as  a foundation.  This  may  be  determined  by 
keeping  records  of  the  total  time  actually  spent  on  orders — “Collected”  or  “His- 
torical” costs — or  may  be  pre-determined  according  to  established  standards 
based  upon  past  records,  time  studies  and  tests — “Pre-determined”  or  “Engi- 
neering” costs.  By  any  of  these  methods  the  records  will  show  the  amount  of 
Direct  Labor  required  to  produce.  It  then  remains  to  determine  how  much 
must  be  added  to  cover  the  Indirect  Labor. 


“General”  and  “Departmental”  Indirect  Labor.  This  Indirect 
Labor  is  divided  into  two  groups,  viz.:  General  Indirect  and  Departmental 
Indirect  Labor.  Under  the  first  heading  belong  those  who  serve  all  departments 
such  as  employees  of  the  steam  and  power  plants,  general  mechanics  and  mill- 
wrights, watchmen,  etc.  The  Departmental  Indirect  Labor  includes  depart- 
ment superintendents  or  foremen,  sweepers  and  other  Indirect  Labor  confined  to 
individual  departments. 


The  following  example  will  serve  to  illustrate  how  the  Indirect  Labor 
may  be  apportioned  and  included  in  cost  of  product.  The  supposititious  case 
is  that  of  a plant  manufacturing  Rotary  Veneers,  Lumber  Cores  and  Plywood, 
and  these  divisions  are  treated  as  costing  departments. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


IV, 


Labor 

Revised  1922 


ANALYSTS  OF  LABOR 


53 


ANALYSIS  OF  LABOR 


GENERAL  INDIRECT  LABOR 

PRORATION 


Persons 

Hours  Wages 

% 

Hours 

Wages 

% Hours 

Wages 

% Hours 

Wages 

*2  Watchmen.... 

5,000 

$2,000 

30 

1,500 

$ 600.00 

20 

1,000 

$ 400.00 

50 

2,500 

$1,000.00 

1 Millwright.... 

3,000 

1,950 

25 

750 

487.50 

50 

1,500 

975.00 

25 

750 

487.50 

1 Carpenter.... 

3,000 

1,500 

25 

750 

375.00 

50 

1,500 

750.00 

25 

750 

375.00 

1 Blacksmith.. 

3,000 

1,800 

35 

1,050 

630.00 

35 

1,050 

630.00 

30 

900 

540.00 

1 Saw  Filer 

3,000 

1,800 

25 

750 

450.00 

30 

900 

540.00 

45 

1,350 

810.00 

1 Oiler 

3,000 

1,200 

30 

900 

360.00 

35 

1,050 

420.00 

35 

1,050 

420.00 

1 Yd.  Foreman 

3,000 

1,800 

50 

1,500 

900.00 

50 

1,500 

900.00 

1 Teamster 

3,000 

1,350 

50 

1,500 

675.00 

50 

1,500 

675.00 

6 Laborers 

18,000 

5,400 

50 

9,000 

2,700.00 

50 

9,000 

2,700.00 

t2  Hog  Op’rs.... 

6,000 

2,100 

45 

2,700 

945.00 

35 

2,100 

735.00 

20 

1,200 

420.00 

t4  Firemen 

14,400 

5,760 

45 

6,480 

2,592.00 

35 

5,040 

2,016.00 

20 

2,880 

1,152.00 

§1  Engineer 

3,600 

2,340 

22 

792 

514.80 

33 

1,188 

772.20 

45 

1,620 

1,053.00 

22  Persons 

68,000  $29,000 

27,672  $11,229.30 

15,328 

$7,238.20 

25,000  $10,532.00 

Percent  of 

Total 

100% 

100% 

‘41% 

39% 

22% 

25% 

37% 

36% 

DEPARTMENTAL  INDIRECT  LABOR 

Person 

No. 

Hours 

Wages 

No. 

Hours 

Wages 

No. 

Hours 

Wages 

5 Foremen. 

1 

3,000 

$2,400 

1 

3,000 

$1,920 

3 

9,000 

$5,400 

1 Ast.  Fore’n  . 

1 

3,000 

1,800 

1 TCnife  G’nd’r 

1 

3,000 

1,500 

3 Mechanics 

1 

3,000 

1,800 

2 

6,000 

3,600 

1 Storekeeper 

1 

3,000 

1,200 

2 Glue  Mixers  . 

1 

2 

6^000 

3,600 

1 Sweeper 

1 

3,000 

900 

1 Kiev.  Opr. 

1 

3,000 

1,050 

• 

15  Persons.-  

3 

9,000 

$5,700 

2 

6,000 

$3,720 

10 

30,000 

$15,750 

37  Persons 


TOTAL  INDIRECT  LABOR 

36,673  $16,929.30  21,328  $10,958.20 


DIRECT  LABOR 

266  Persons 56  168,000  $77,280.00  64  192,000  $84,480.00 


55,000  $26,282.00 


146  438,000$  179,580.00 


TOTAL  LABOR 


303  Persons 204,672  $94,209.30  213,328  $95,438.20  493,000$205,862.00 

Indirect  Per 

Cent  of  Direct 21.8%  21.9%  11.1%  13%  12.6%  14.6% 

Average 

Hourly  Wage $0,460  $0,447  $0,418 


♦Apportioned  according  to  area  traversed. 
tApportioned  in  same  ratio  as  Steam  Generation. 

§Apportioned  in  same  ratio  as  Power. 

Other  General  Indirect  Labor  apportioned  according  to  time  spent  in  each  department. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


54 


INDIRECT  LABOR 


IV. 


Labor 

Revised  ]922 


Treatment  of  Indirect  Labor.  By  the  foregoing,  it  will  be  seen  that  the 
money  paid  for  Indirect  Labor  in  the  respective  departments  amounts  to  the 
following  percentages  of  that  paid  for  Direct  Labor:  Rotary  Veneer,  21.9%; 
Lumber  Cores  13%;  Plywood,  14.6%.  Therefore,  if  a system  of  “collecting” 
the  cost  of  the  Direct  Labor  only  is  followed,  the  cost  of  the  Direct  Labor 
reported  should  be  increased  by  these  respective  percentages  in  order  to  account 
for  all  of  the  Labor. 

If,  however,  the  time  only  is  recorded  (not  the  cost  of  the  Direct  Labor) 
and  an  average  departmental  wage  rate  is  used,  then  the  percentages  indicating 
the  proportion  of  the  time  of  Indirect  Labor  to  Direct  Labor  should  be  used  as 
noted,  viz.:  Rotary  Veneers,  21.8%;  Lumber  Cores,  11.1%;  Plywood,  12.6%. 
In  this  case  the  average  wage  rates  used  must  not  be  the  averages  of  the  Direct 
Labor  wages  only  but  the  averages  of  all  the  wages  in  the  respective  depart- 
ments found  by  dividing  the  sum  of  the  costs  of  the  Direct  and  Indirect  Labor 
by  the  sum  of  the  corresponding  hours  of  labor. 

Under  the  first  plan,  if  the  Direct  Labor  expended  upon  a certain  lot  of 
panels  (Plywood)  amounts  to  $1,428.71,  we  must  add  to  it  14.6%  or  $208.59 
making  in  all  $1,637.30  for  labor. 

Under  the  second  plan,  3,479  Direct  Labor  hours  would  be  reported.  In 
order  to  account  for  the  Indirect  Labor  incurred  we  must  add  to  this  12.6%  or 
438  hours  making  a total  of  3,917  labor  hours  or  “Man-Hours,”  which  at  the 
average  wage  rate  of  $0,418  for  the  department  gives  the  same  total,  viz.: 
$1,637.30.  The  fact  that  all,  or  part,  of  the  workmen  may  be  paid  on  some  basis 
other  than  a rate  per  hour  does  not  complicate  the  determining  of  the  average 
rate  per  hour  for  a department  or  the  percentage  to  add  to  cover  Indirect 
Labor.  All  that  need  be  considered  are  the  hours  worked  and  the  compensation 
received.  This  compensation  may  be  based  upon  a straight  per  hour  wage, 
piece  rate  or  some  system  of  bonuses,  or  a combination  of  all  of  them.  The  fact 
will  still  remain  that  so  many  men  worked  so  many  hours  and  received  so  much 
pay. 

Where  a “collecting”  cost  system  is  followed,  (that  is,  a system  where  a 
record  is  made  of  the  time  actually,  or  estimated  as,  spent  upon  particular  lots 
or  orders  by  the  workmen  through  whose  hands  the  materials  pass)  all  labor 
not  reported  on  time  cards  must  be  treated  as  Indirect.  Under  such  a system, 
it  is  practically  impossible  to  account  for  what  is  really  Direct  Labor  spent  on 
some  of  the  operations  involved.  For  example,  in  making  panels  it  is  necessary 
at  the  first  operation,  that  of  selecting  and  cutting  the  dry  veneers,  to  work  on 
two  or  more  lots  at  a time  in  order  that  the  veneers  in  the  flitch  may  be  utilized 
to  the  best  advantage  by  cutting  various  lengths  of  pieces  from  them.  A 
timekeeper  with  nothing  else  to  do  but  watch  this  one  operation  would  find  it  a 
well  nigh  impossible  task  to  report  the  amount  of  time  expended  upon  each 
order  correctly  and  it  is  manifestly  too  much  to  expect  the  operative  himself 
to  keep  track  of  it.  The  same  could  be  said  of  cutting  the  lumber  used  in 
Cores,  cutting  Veneers  from  logs,  and  numerous  other  operations.  Attempts 
are  made  to  do  this,  however,  in  the  various  forms  of  collecting  cost  systems 
commonly  in  use  with  varying  degrees  of  completeness.  Where  the  engineering 
type  of  costing  is  used,  the  time  required  for  every  operation  may  be  accurately 
pre-determined,  and,  therefore,  it  is  necessary  to  consider  as  Indirect  Labor  only 
the  time  of  those  who  do  not  specifically  work  upon  individual  orders  in  process. 
Under  any  system  it  is  best  to  consider  as  Indirect  Labor  only  that  which  cannot 
be  accounted  for  with  a reasonable  degree  of  accuracy  as  Direct  Labor. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


IV.  Revwed°1922  departmentizing  and  influence  of  sizes 


55 


DEPARTMENTIZING 

Costing  Departments  may  or  may  not  correspond  to  the  geographical 
departments  of  a plant  but  should  correspond  to  marketable  products  of  the 
plant,  although  all  of  those  products  may  not  be  sold  as  such.  A Plywood  top, 
for  example,  is  made  up  of  Lumber  Cores  and  Veneers,  and,  while  a particular 
manufacturer  may  make  all  of  the  veneers  and  cores  which  he  uses  and  may 
not  sell  any  as  distinct  products,  it  is  nevertheless  true  that  these  component 
parts  are  articles  of  trade  themselves  and  may  be  purchased  as  such.  The 
assembling  of  these  parts  into  Plywood  products  constitutes  a separate  manu- 
facturing process,  and  there  are  members  of  the  industry  who  do  this  part  of 
the  work  only,  using  purchased  veneers  and  cores.  These  three  groups  of 
manufacturing  may  be  easily  followed  in  Plywood  costing  and  give  oppor- 
tunity for  observing  whether  high  or  low  total  costs  are  attributable  to  one  or 
the  other  of  these  processes,  and  also  make  it  possible  to  compare  costs  with  the 
market  prices  of  these  separate  commodities.  Cases  are  not  rare  whei’e  the 
change  from  keeping  total  costs  to  group  costing  has  disclosed  the  fact  that 
component  parts  were  costing  more  to  manufacture  than  they  could  be  pur- 
chased for  from  others.  The  failure  to  make  the  proper  distribution  of  Labor 
costs  may  also  be  responsible  for  this  condition,  particularly  where  an  arbitrary 
apportionment  is  made  based  upon  judgment  rather  than  a study  of  the  real 
facts. 


INFLUENCE  OF  SIZES  UPON  LABOR  COST. 

Many  manufacturers  of  Plywood  figure  the  cost  of  Labor  at  a uniform 
rate  per  1,000  sq.  ft.  regardless  of  sizes  of  product.  This  does  not  reflect  true 
cost  as  there  is  hardly  an  operation  from  the  time  the  raw  materials  are  first 
cut  until  the  finished  product  is  crated  that  does  not  require  more  labor  per  1,000 
sq.  ft.  of  small  sizes  than  large  sizes  because  of  the  greater  number  of  pieces 
to  be  handled  and  worked  upon.  Any  Plywood  producer  will  concede  that  it 
costs  more  to  make  panels  12"  x 12"  (even  in  multiples)  than  it  does  panels 
30"  X 60".  Therefore,  all  who  estimate  the  labor  on  various  sizes  at  an  average 
rate  commit  error,  and  the  degree  of  error  depends  solely  upon  the  range  of 
sizes  of  product  and  the  volume  of  output. 


For  example,  it  has  been  found  to  require  156  hours  of  labor  to  produce 
1,000  ft.  of  5 ply  blocks  of  certain  specifications  8"  x 12",  but  only  78  hours  per 
1,000  ft.  of  the  same  specifications  40"  x 84" — a ratio  of  2 to  1.  Obviously  it 
would  be  very  misleading  to  use  an  average  of  117  hours  of  labor  for  all  sizes. 
To  do  so  would  be  to  penalize  the  sizes  which  swell  production  and  increase  the 
volume  of  profits,  and  assuming  that  prices  are  based  upon  these  average  costs 
the  tendency  would  be  to  invite  orders  for  the  sizes  which  cost  most  to  produce. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


56 


COST  BASES 


IV. 


Labob 

Revised  1922 


It  is  not  difficult  to  perceive  why  manufacturers  who  attempt  to  compare 
Labor  costs  on  panels  of  extreme  dimensions  (some  following  the  one  method 
and  some  the  other)  arrive  at  no  definite  or  informative  conclusions.  If  any 
Plywood  manufacturer  prefers  to  price  uniformly  at  a rate  per  1,000  sq.  ft.,  let 
it  be  done  as  a matter  of  deliberate  fyolicy  and  not  as  a result  of  misinformation  or 
lack  of  knowledge.  KNOW  COSTS. 


“COLLECTED”  OR  “HISTORICAL”  COSTS 

In  Section  I under  “Labor”  it  was  intimated  that  methods  would  be  de- 
scribed in  this  chapter  “for  obtaining  Labor  Costs  by  members  who  may  not 
feel  justified  in  collecting  detailed  Labor  Costs.” 


A discussion  of  the  subject  involves  somewhat  of  a comparison  of  costing 
methods  as  a whole  and,  therefore,  the  factors  of  Expense  and  Material  are 
touched  upon  as  well  as  Labor  but  the  chief  differences  lie  in  the  methods  of 
determining  and  accounting  for  the  latter  and  it  is  therefore  treated  under  this 
head. 


It  is  not  thought  necessary  to  take  up  space  with  explanations  and  illus- 
trations of  methods  for  collecting  Labor  costs  as  these  consist  in  collecting 
such  historical  records  as  is  practicable  of  work  already  performed  and  vary 
little  except  in  the  procedure  and  forms  used.  The  value  of  “Collected  Costs” 
may  be  realized  to  the  fullest  extent  only  where  a sufficient  number  of  records  of 
jobs  similar  in  specifications,  sizes  and  quantity  have  been  collected  to  form  a 
basis  for  judgment  as  to  what  should  constitute  a normal  cost  for  future  similar 
orders.  However,  because  of  the  variations  in  materials,  workmen,  wage  rates 
and  conditions  a comparison  of  costs  between  different  lots  is,  more  often  than 
not,  disappointing  and  as  often  leaves  the  estimator  in  the  dark  as  to  just  what 
basis  he  should  use  for  pricing.  A long  period  of  time  must  elapse  before  a 
sufficiently  large  number  of  records  of  similar  jobs  can  be  collected  and  recorded 
to  form  a real  asset  and  not  infrequently  the  demand  meanwhile  changes  in 
character  and  the  records  are  found  to  be  of  questionable  value.  Where  it  is 
necessary  to  estimate  the  value  of  product  different  in  specifications  from  any 
previously  made,  even  though  the  difference  may  be  slight,  it  is  often  difficult 
under  this  method  to  calculate  what  influence  this  change  will  have  upon  the 
labor  cost  and  the  result  arrived  at  is,  after  all,  very  much  in  the  nature  of  an 
appraisal  based  upon  judgment.  There  are  men  in  this  as  well  as  other  industries 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


IV. 


Labor 

Revised  1922 


ENGINEERING  COST 


57 


whose  judgment  based  upon  years  of  experience  is  remarkable  for  its  accuracy 
but  they  carry  their  judgment  with  them  and  it  is  unwise,  to  say  the  least,  to 
depend  too  largely  upon  a source  of  information  which  today  is  here  and  to- 
morrow is  gone — if  only  on  a vacation. 


“ENGINEERING”  OR  “PRE-DETERMINED”  COSTS 

Notwithstanding  the  advantages  realized  by  “Collecting”  cost  systems  over 
the  old  rule-of-thumb  methods  the  need  was  felt  for  some  system  by  which 
costs  could  be  pre-determined.  The  “Engineering  Costs”  of  today  are  the 
result  of  careful  study  along  these  lines  based  upon  sound  scientific  principles  and 
practical  tests  in  many  and  varied  lines  of  industry.  In  addition  to  pre-deter- 
mining costs.  Engineering  costs  do  not  entail  the  clerical  labor,  especially  by 
factory  wage  earners,  of  the  collecting  cost  systems  and  are  more  nearly  com- 
plete and  reliable  when  it  comes  to  establishing  standards  of  costs.  As  this 
method  of  costing  is  not  so  well  known  among  members  of  the  Plywood  Industry, 
some  space  will  be  given  over  to  an  outline  of  the  principles  and  practices 
involved. 


Engineering,  or  Pre-determined  costs  consist  of  the  assembled,  analyzed 
and  tested  standards  of  Expense,  Materials  and  Labor  involved  in  any  process. 


The  man  who  must  set  a price  upon  his  product  is  not  so  much  concerned 
with  what  his  cost  records  may  show  as  with  the  cost  facts  themselves.  To  go  a 
little  further,  he  is  not  so  much  concerned  with  what  the  actual  costs  of  specific 
jobs  may  be  as  with  what  constitutes  a normal  cost  in  his  plant  for  any  lot  or 
article  of  any  specifications,  as  this  will  form  the  real  basis  of  pricing  in 
competition  with  other  manufacturers.  The  problem  which  Engineering 
Costing  seeks  to  solve  is  what  will  constitute  normal  or  standard  cost  under 
any  set  conditions. 


Expense  Standards.  The  method  for  arriving  at  standards  for  Expense 
rates  has  already  been  fully  explained  in  Section  II  and  needs  no  further  comment 
except  to  call  attention  to  the  fact  that  expense  cost  in  this  industry  is  best 
reduced  to  a rate  per  man-hour  so  that  it  may  be  applied  parallel  to  Labor 
Cost. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


58 


ENGINEERING  COST 


IV. 


Labor 

Revised  1922 


Material  Standards.  In  setting  up  material  standards  for  the  manufac- 
ture of  Veneers,  the  number  of  feet  of  logs  required  to  produce  1,000  ft.  of  dried 
veneers  of  each  kind  is  ascertained.  This  information  is  arrived  at  by  taking 
tests  covering  good,  bad  and  indifferent  qualities  of  logs  of  each  grade  and 
kind,  and  checking  these  tests  from  time  to  time  by  a perpetual  inventory. 


In  Lumber  Core  making,  material  standards  are  set  up  by  recording  the 
feet  of  lumber  of  the  respective  kinds,  grades  and  thicknesses  required  to  produce 
1,000  ft.  of  finished  cores. 


Similar  standards  for  thin  centers,  cross-bands,  backs  and  face  veneers  are 
established;  also  for  glue,  tape,  etc.,  used  in  the  various  processes.  It  is  recom- 
mended that  material  pricing  in  Engineering  Costing  be  based  on  “current 
market”  as  explained  on  pages  44  and  45  and  that  a variable  scale  of  values 
should  be  followed  as  set  forth  on  pages  46  and  47.  The  prices  of  materials  should 
be  reduced  by  the  proper  credit  for  matei’ial  used  in  by-products  such  as  fuel. 


Labor  Standards.  Standards  of  labor  are  established  by  careful  studies  of 
the  minimum  time  required  for  each  operation,  both  of  direct  and  indirect 
nature.  “Operation”  is  not  to  be  construed  to  mean  process  as  one  process 
is  likely  to  be  composed  of  several  operations.  Veneer  cutting  is  a process  but  is 
composed  of  the  following  operations : (a)  removing  core  from  lathe  and  locking 
new  block  in  position;  (b)  turning  down  new  block  to  point  where  good  veneer 
cutting  is  begun;  (c)  cutting  veneer. 


The  lathe  crew  acts  as  one  unit,  therefore  the  time  required  in  each  of  the 
three  operations  is  multiplied  by  the  number  of  the  lathe  operatives  to  arrive 
at  the  labor  hours  or  man-hours  of  labor.  The  cycle  of  time  is  divided  into  three 
parts  according  to  the  elements  affecting  the  length  of  time  required  for  each. 
In  the  first  operation  the  governing  factor  is  the  number  of  blocks,  as  it  re- 
quires practically  as  long  to  handle  a small  block  as  a large  one.  The  length 
of  time  for  the  second  operation  depends  upon  the  size  of  the  block,  as  it  takes 
longer  to  turn  the  irregularities  of  a large  block  down  to  a smooth  cylinder  than 
it  does  those  of  a small  one.  The  third  operation  depends  upon  the  amount  of 
veneer  yielded  by  the  block. 


After  the  time  studies  for  the  several  operations  are  taken  on  a represent- 
ative run  of  blocks  of  various  sizes  and  qualities,  the  whole  is  reduced  to  a 
standard  of  time  required  per  1,000  ft.  of  veneer. 


Wherever  the  time  required  depends  solely  upon  the  will  and  ability  of 
the  operative,  the  ideal  time  (that  is  the  actual  shortest  time  required,  or  the 
operation  itself)  is  increased  by  50%  to  provide  for  average  human  inefficiency. 
This  percentage  has  been  established  as  representative  after  exhaustive  study 
by  leading  engineers,  covering  many  industries. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Labor 

• Revised  1922 


ENGINEERING  COST 


59 


As  all  calculations  are  based  upon  a unit  of  1,000  ft.  of  finished  product, 
(in  Plywood,  that  is  panel  and  top  manufacturing,  this  would  be  1,000  ft.  before 
final  trimming  as  set  forth  on  page  49)  it  is  necessary  in  figuring  the  amount  of 
labor  at  each  operation  to  use  as  a basis  the  amount  of  material  which  is  handled 
at  that  operation  to  produce  1,000  ft.  by  the  last  operation.  In  other  words, 
if  it  requires  1,300  ft.  of  a certain  kind  and  grade  of  lumber  to  produce  1,000 
ft.  of  finished  cores,  the  first  operation  requires  the  handling  of  1,300  ft.  of 
lumber  instead  of  1,000  ft.,  and  the  next  operation  the  amount  remaining  from 
the  first,  and  so  on  down  to  the  last  operation. 

After  the  man-hours  of  direct  labor  are  determined,  a percentage  represent- 
ing the  indirect  labor  is  added. 

This  description  of  Engineering  Costs  as  applied  to  Plywood  manufacturing 
is  intended  only  to  set  forth  the  principles  upon  which  they  are  based  and  to 
outline  in  brief  the  procedure  used.  Therefore,  space  will  not  be  requisitioned 
to  demonstrate  the  setting  up  of  standards  for  all  of  the  operations  involved  in 
the  manufacture  of  a product,  but  the  following  illustration  covering  the  ripping 
of  lumber  for  cores  will  be  given  as  representative: 


LABOR  STANDARDS 
Ripping  4/4  Chestnut. 


Machine Falls  No.  103,  continuous  automatic  feed. 

Crew Operator  and  one  helper. 

Study Truck  load  of  615  board  feet  431^"  long. 


Operation  (a.)  Changing  Trucks 

615  ft.,  2 men  @ 1.00  Min 2.00  min. 

Operation  (b.)  Sorting  and  Ripping 

615  ft.,  2 men  @ 31.38  min 62.76  min. 

64.76  min. 

Indirect  Labor  15% 9.71  min. 

Total  Ideal  Labor 74.47  min. 

Inefficiency,  50%.. 37.23  min. 

Total  Standard  Labor  (615  ft.)._ 111.70  min. 


1,350  ft.  of  lumber  required  at  this  operation  to 
produce  1,000  ft.  of  finished  cores,  therefore 
standard  Labor  per  1,000  ft.  of  cores  for  this 
operation  equals: 


X 111.70  min.  or  245.20  min.  or  4.09  man-hours  per  1,000  ft.  of  cores. 

615 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  manufacturers  ASSOCIATION 


60 


ENGINEERING  COST 


IV. 


Labor 

Revised  1922 


The  time  required  to  perform  each  operation  is  determined  in  a similar 
manner  and  reduced  to  terms  of  man-hours  per  thousand  square  feet.  As  the 
labor  varies  in  some  cases  with  the  length  and  in  others  with  the  width  it  is 
necessary  to  differentiate  between  sizes  and  not  use  a common  factor  for  all 
sizes.  As  a basis  for  standards,  four  lengths  and  three  widths  covering  the 
extreme  and  mean  dimensions  are  generally  adopted  and  the  time  set  up  for 
each  operation  in  each  size.  The  labor  man-hours  for  all  operations  are  then 
totaled  for  each  size  to  give  the  whole  labor  for  all  of  the  operations  of  manufacture. 

To  make  it  possible  to  arrive  at  the  labor  for  making  any  size,  these  man- 
hour quantities  for  the  basic  sizes  are  “spotted”  on  a graphic  chart  and  lines 
drawn  through  all  points  common  to  each  width.  Separate  charts  may  be  used 
for  the  separate  component  parts  of  Plywood  and  for  the  assembling  and  finishing 


'R.Y.y^dhD 


/OQO  Oig 


G Ui^J  C 7 fi£ 


24C 


1*0 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Labor 

■ Revised  1922 


ENGINEERING  COSTS 


61 


process.  In  using  these  separate  charts  the  labor  for  making  cores  would  be 
taken  from  one  chart,  that  for  preparing  faces  from  another,  cross  bands  from 
another,  backs  from  another,  and  the  work  of  assembling,  gluing,  trimming, 
sanding,  inspecting,  packing  and  shipping  from  still  another.  The  total  of  these 
separate  quantities  would  give  all  of  the  labor.  It  simplifies  the  work  of  costing, 
however,  to  combine  the  various  operations  for  all  into  single  charts  for  each 
specification,  thus  making  it  possible  to  arrive  at  all  of  the  labor  by  a single 
reference  and  calculation. 


A chart  of  this  kind  giving  all  of  the  labor  for  making  five-ply  tops  with  gum 
cores  and  butt  walnut  faces  is  shown  on  the  opposite  page.  The  vertical  gradua- 
tions of  the  chart  indicate  the  man-hours  of  labor  per  thousand  square  .feet.  The 
horizontal  graduations  indicate  the  lengths  running  from  10-inches  to  100  inches. 
Each  of  the  curved  lines  indicates  a certain  width,  the  three  principal  lines  having 
been  “spotted”  and  the  others  located  between  them  by  calculation.  If  desired, 
a line  may  be  drawn  for  each  inch  of  width,  but  in  most  cases  this  is  neither 
necessary  nor  feasible  as  the  positions  of  intermediate  widths  may  be  easily 
determined  and  lines  drawn  too  closely  together  make  reading  difficult. 


When  it  is  desired  to  ascertain  the  labor  required  to  make  a top  of  any 
size  the  vertical  line  corresponding  to  the  length  is  followed  upward  to  the  point 
where  it  intersects  the  curved  line  of  width,  and  the  horizontal  line  on  which 
the  point  of  intersection  falls  is  then  followed  to  the  margin  where  the  man- 
hours of  labor  per  thousand  square  feet  is  given.  For  example,  the  labor  on  a 
top  44  inches  by  20  inches  is  found  to  be  112  man-hours  per  thousand.  We  have 
shown  the  point  of  intersection  of  these  length  and  width  lines  by  a small  circle 
on  the  chart,  and  it  will  be  found  that  this  point  is  on  the  horizontal  line  of 
112  man-hours. 


The  standard  hours  times  the  average  hourly  wage  rate  give  the  standard 
cost  of  Labor.  Likewise,  the  standard  hours  times  the  hourly  rate  of  Expense 
gives  the  standard  cost  of  Expense.  It  then  remains  only  to  add  the  Material 
cost  to  complete  the  total. 


Checking  Costs.  If  Engineering  Costs  consisted  merely  in  the  setting 
up  of  standards  of  Expense,  Material  and  Labor  without  providing  any  means 
of  checking  them  for  correctness,  the  criticism  might  justly  be  made  that  they 
represent  what  normal  costs  should  be  and  not  what  normal  costs  really  are, 
and  that  it  is  therefore  unsafe  to  use  them.  This  contingency  is  provided  for, 
however,  so  that  Engineering  Costs  may  be  depended  upon  to  give  actual 
current  costs. 


As  a foundation,  all  invoices  of  shipments  are  analyzed  to  show  the  Man- 
Hours  of  Labor  represented,  and  the  amount  of  Materials  contained,  according 
to  the  standards  set  up  for  each  department.  The  checking  of  the  Material 
Costs  is  a matter  of  comparison  with  the  inventories  and  General  Accounts,  as 
will  be  shown  later  under  “Accounting.” 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


62 


ENGINEERING  COSTS 


IV. 


Labob 

Revised  1922 


In  determining  the  cost  of  Labor,  the  Man-Hours  delivered  by  each  de- 
partment as  shown  by  the  analysis  of  the  invoices,  is  added  to  the  total  of  the 
Man-Hours  delivered  by  that  department  over  a given  period  (say  12  months) 
and  the  amount  of  the  Labor  payroll  for  that  department  for  the  period  is  added 
to  the  total  of  the  department  payrolls  for  the  corresponding  12  months.  The 
figures  for  the  corresponding  period  of  the  previous  year  are  then  deducted,  and 
the  remaining  sum  of  the  payrolls  is  divided  by  the  corresponding  remaining 
sum  of  Labor  Man-Hours,  and  this  gives  the  actual  average  cost  per  man-hour 
of  standard  Labor  Hours  delivered  in  twelve  months  and  furnishes  the  rate  to  use 
for  the  following  costing  period.  The  Expense  rate  is  found  in  the  same  way  by 
dividing  the  Labor  hours  into  the  Expense  Cost.  These  rates  may  be  compared 
with  the  Standard  rates  based  upon  budgeted  payrolls  and  expenses  respectively, 
and  budgeted  hours  of  Labor,  and  the  efficiency  of  operation  determined.  It  is 
recommended  that  the  Standard  rates  be  used  as  a basis  for  pricing  rather 
than  actual  cost  rates,  as  the  latter  may  reflect  abnormal  or  subnormal  condi- 
tions while  the  former  are  intended  to  represent  normal  conditions. 


TYING  COST  SYSTEM  TO  GENERAL  ACCOUNTS 

The  remaining  operation,  and  an  essential  one  to  make  any  costing  system 
complete  and  of  the  greatest  value,  is  that  of  tying  the  costs  into  the  general 
accounts.  This  will  be  treated  under  “Accounting.” 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V. 


Accounting 
Revise  1922 


REQUIREMENTS 


63 


ACCOUNTING 

The  prime  purpose  of  any  cost  system  is  to  obtain  the  cost  of  specific  products. 
We  are,  of  course,  interested  to  know  whether  the  ljusiness  as  a whole  is  profi- 
table and  can  obtain  this  information  from  the  general  accounts,  but  if  we  wish 
to  insure  a profit  on  each  article  we  make,  we  must  take  the  steps  necessary  to 
keep  currently  informed  on  the  cost  of  each  article.  General  accounting  cannot 
give  this  information;  hence  “costing  systems.”  However,  with  whatever 
methods  are  used  for  obtaining  costs,  there  must  be  provided  some  means  for 
checking  cost  records  with  the  general  accounts,  else  “costs”  will  be  simply  esti- 
mates or  approximations.  We  may  feel  sure  of  the  theoretical  correctness  of  our 
methods  and  yet  not  be  able  to  satisfy  even  ourselves  of  the  certainty  of  it.  If 
we  have  no  means  of  proving  that  our  costs  are  correct  our  cost  system  is 
misnamed  and  we  should  call  it  our  “estimating  system.” 

A case  of  this  kind  was  recently  brought  to  the  attention  of  the  writer. 
According  to  the  cost  figures  of  a certain  veneer  manufacturing  concern  it  was 
making  a certain  definite  percentage  of  profit  on  every  sale — a percentage  which 
had  been  determined  upon  as  a part  of  the  sales  policy  of  the  company.  The 
plant  was  operating  at  a fairly  uniform  rate  of  production,  close  to  capacity,  and 
so  the  management  felt  quite  well  assured  of  a predetermined  amount  of  profit 
on  the  year’s  operations;  in  round  numbers  between  $35,000.00  and  .$40,000.00. 
It  was  not  until  the  inventory  was  taken  at  the  end  of  the  twelve  months  and 
the  books  balanced,  however,  that  the  real  condition  was  known,  and  the  melan- 
choly fact  disclosed  that  the  year’s  labor  had  netted  $12.00.  Is  it  any  wonder 
that  the  “cost  system”  was  kicked  out  the  back  door? 

It  is  not  the  intention  of  this  text  to  convey  the  impression  that  any  system 
of  costing  may  be  brought  to  the  state  of  perfection  where  totals  as  shown  by 
the  cost  records  will  check  absolutely  with  the  totals  of  actual  expenditures  for 
Expense,  Materials  and  Labor  as  given  by  the  general  accounts,  but  if  any  cost 
system  is  to  be  safe  and  efficient,  it  must  be  possible  to  draw  accurate  com- 
parisons periodically  and  so  keep  the  balance  reasonably  uniform. 

Although  costs  must  be  tied  into  the  books  to  be  of  the  greatest  value,  this, 
fortunately,  does  not  necessitate  a particular  system  of  accounting.  Any 
accounting  system  may  be  made  to  harmonize  sufficiently  with  the  costing 
methods  to  give  the  desired  results  and,  as  a rule,  few  changes  are  necessary  to 
bring  this  about.  The  observance  of  the  fundamental  principles  of  correct 
costing  and  accounting  by  all  meml^ers  of  an  industry  is  essential  to  harmony, 
mutual  understanding,  stability  and  success,  but  variations  in  the  methods  of 
application  of  these  principles  are  not  necessarily  a detriment  although  uni- 
formity is  of  course  to  be  desired  in  so  far  as  is  practicable. 

The  essential  requirements  of  any  accounting  system  as  regards  costing  in 
the  Plywood  industry  may  be  summed  up  in  furnishing  the  totals  of  expenditures 
for  Expense,  Materials  and  Labor  for  each  costing  department  at  regular 
stated  intervals. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


64 


EXPENSE 


V. 


Accountino 
Revised  1922 


The  term  “Costing  Department”  must  not  be  confused  with  the  word 
department  as  commonly  applied  to  geographical  divisions  of  a plant  which 
may  not  coincide  with  processes.  A plywood  plant  making  its  own  veneers 
may  have  the  dryers  for  wet  veneers  and  the  re-dryers  for  purchased  or  other 
dry  veneers  in  the  same  room,  but  the  former  are  used  in  the  manufacture  of 
veneers,  a product  by  itself,  while  the  latter  form  part  of  the  equipment  used  in 
the  manufacture  of  plywood.  In  costing,  departments  are  recognized  by  their 
functions  or  products.  Some  may  be  termed  indirect,  such  as  the  power  plant, 
while  others  are  direct  or  productive  like  the  department  which  makes  cores  for 
example,  and  it  is  the  aim  to  distribute,  directly  or  indirectly,  the  cost  of  each 
department  to  the  respective  finished  products.  In  a plywood  plant,  beginning 
its  processes  with  logs  and  lumber  as  raw  materials,  these  products  would  be 
Veneers,  Lumber  Cores  and  Plywood,  while  in  the  case  of  a concern  which 
purchases  its  veneers  and  cores  and  merely  assembles  them  into  Plywood,  there 
would  be  only  the  one  product. 

Whether  there  be  one  product  or  several,  the  cost  of  each  is  made  up  of  the 
factors  of  Expense,  Material  and  Labor,  and  these  in  turn  are  composed  of 
elements  which  have  been  distributed  from  larger  accounts  representing  the  sums 
of  numerous  transactions.  So  the  whole  problem  in  co-ordinating  the  book- 
keeping system  with  the  costing  system  is  that  of  making  it  possible  to  make 
certain  groupings  of  expenditures  which  are  comparable  with  similar  groupings 
in  the  cost  records,  that  the  cost  of  each  product  as  shown  by  the  latter  may 
be  certified. 

It  is  the  purpose  of  this  chapter  simply  to  outline  from  a cost  engineer’s 
standpoint  what  may  be  expected  of  any  system  of  general  accounting  rather 
than  to  attempt  to  give  detailed  examples  of  any  specific  methods,  and  the 
illustrations  which  will  be  given  are  not  intended  to  serve  any  purpose  beyond 
that  of  exemplifying  fundamental  principles. 


EXPENSE 

Taking  up  the  treatment  of  the  different  elements  of  cost  as  set  forth  in 
proceeding  pages,  we  may  consider  first  the  general  subject  of  Expense  with  its 
sub-divisions.  For  convenience  of  comparison  we  will  use  the  figures  from  the 
example  given  on  page  27  to  42  inclusive.  While  the  figures  there  shown  repre- 
sent budgeted  annual  expenses,  they  may  be  used  to  represent  the  actual 
monthly  entries. 

In  studying  this  chapter  the  Expense  Analysis  referred  to  should  be  kept 
before  the  reader,  as  the  principles  of  distribution  are  the  same,  also  the  pro- 
portions used. 

Beginning  with  Taxes,  it  will  be  seen  that  Corporation  Taxes  are  charged  to 
Administrative  and  Sales  Expense  and  that  Real  and  Personal  Taxes  are  dis- 
tributed to  Insurance,  Rent,  and  Equipment  Expense,  on  the  basis  of  the  valua- 
tions of  Land  and  Buildings,  Sprinkler  Equipment,  and  Manufacturing  Equipment 
respectively. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V. 


Accounting 
Revised  1922 


EXPENSE 


65 


Dr.  TAXES  Cr. 


Corporation  Taxes $ 409.00 

Real  and  Personal  Taxes 1,045.00 

Administrative  and  Sales  Exp $ 409.00 

Insurance,  6%  of  R.  & P.  Tax 62.70 

Rent,  50%  of  R.  & P.  Tax 522.50 

Equip.  Ex.  44%  R.  & P.  Tax 459.80 

$1,454.00 

$1,454.00 

The  account  with  Insurance  would  appear  as  follows,  the  total  of  Fire  and 
Tornado  Insurance  and  charges  against  Sprinkler  System  being  apportioned 
to  Rent,  and  Equipment  Expense  on  the  basis  of  the  valuation  of  Buildings  and 
Equipment  (not  including  Sprinkler  System) : 


Dr. 


INSURANCE 


Cr. 


Rent,  51%  of  $2,952.05 $ 1,505.54 


Fire  Insurance $ 843.75 

Tornado  Insurance 285.60 

Int.  on  Inv.  in  Sprinkler  System....  960.00 

Taxes  on  Sprinkler  System 62.70 

Maintenance,  Sprinkler  System 800.00 

(Total  above  $2,952.05.) 

Boiler  Insurance 28.30 

Paymaster  Insurance 16.20 

Riot  and  Civil  Commotion  Ins 475.00 

Credit  Indemnity  Insurance 757.50 

Workmen’s  Compensation  Ins 3,713.00 

Public  Liability  Insurance 14.30 

Elevator  Insurance 7.60 

(Total  above  $4,983.60.) 


$ 7,963.95 


Eqmp.  Exp.,  49%,  of  $2,952.05 1,446.51 

Steam  Generation 28.30 

Admin,  and  Sales  Expense 4,983.60 


$ 7,963.95 


In  like  manner.  Interest  on  Investment  is  charged  against  Rent  and  certain 
Equipment  (a  corresponding  credit  being  made  to  Profit  and  Loss),  and  dis- 
tributed according  to  valuation  of  same  as  follows; 


Dr.  INTEREST  ON  INVESTMENT  Cr. 


Int.  on  Inv.  in  Bldgs  and  Land $ 7,440.00 

Int.  on  Inv.  in  Sprinkler  System 960.00 

Int.  on  Inv.  in  Elec.  P.  and  L.  Eq..  420.00 

Int.  on  Inv.  in  Auto  Trucks 204.00 

Rent $ 7,440.00 

Insurance 960.00 

Equipment  Expense 624.00 

$ 9,024.00 

$ 9,024.00 

It  is  recommended  that  a Maintenance  Reserve  Account  be  set  up.  This 
account  would  be  charged  with  budgeted  amounts  covering  estimated  Depre- 
ciation and  Obsolescence,  and  actual  expenditures  for  Repairs.  The  latter  should 
cover  cost  of  Materials  for  Repairs  and  Replacements  and  outside  Labor  only  for 
same,  the  labor  by  employees  on  the  payroll  being  taken  care  of  under  “Labor” 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


66 


EXPENSE 


V. 


AcCOUNTINa 
Revised  1922 


as  shown  later.  The  account  is  credited  with  amounts  carried  to  Rent,  Insurance, 
and  Equipment  Expense  and  which  are  based  upon  predetermined  percentages  of 
valuation  calculated  to  represent  normal  Maintenance  Expense;  and  with  pro- 
ceeds from  the  sale  of  obsolete  and  wornout  equipment.  The  following  example 
of  such  an  account  is  given  by  way  of  illustration. 


Dr. 


MAINTENANCE  RESERVE 


Cr. 


Balance  forward $ 1,100.00 

Depreciation  of  Buildings 5,800.00 

Repairs  to  Buildings 1,374.00 

Depreciation  of  Kilns 315.00 

Repairs  to  Kilns 265.00 

Depreciation  of  Sprinkler  System....  480.00 

Repairs  to  Sprinkler  System 22.00 

Depreciation  of  Auto  Trucks... 680.00 

Repairs  to  Auto  Trucks 263.50 

Depreciation  of  Other  Equipment..  11,303.50 
Repairs  to  Other  Equipment 4,726.35 


Sale  of  Discarded  Equipment.. $ 325.00 

Building  Rent 10,440.00 

Kiln  Rent 450.00 

Insurance 800.00 

Equipment  Expense 17,805.25 


Equipment  Replacements 2,325.00 


Balance  forward 1,165.90 

$29,820.25 


$29,820.25 


Following  are  shown  the  charges  to  Rent  and  its  distribution.  It  will  be 
noted  that  the  debits  originate  in  the  preceeding  accounts.  The  distribution 
is  made  on  the  basis  of  a percentage  schedule  made  up  from  the  summary  of 
Land  and  Building  Rental  charges  as  shown  on  page  37,  these  having  been 
based  upon  areas  occupied  by  departments,  variable  rates  of  depreciation,  etc. 


Dr. 


RENT 


Cr. 


Int.  on  Inv.  in  Land  and  Bldgs $ 7,440.00 

Taxes  on  Land  and  Bldgs 522.50 

Insurance  on  Buildings... 1,505.54 

Maintenance  of  Mfg.  Bldgs.. 10,440.00 

Maintenance  of  Kiln  Bldgs 450.00 


$20,358.04 


Admin,  and  Sales  Expense 
General  Expense 

- 3% 
...14% 

$ 610.74 

2,850.13 

Steam  Generation 

...  2% 

407.16 

Rotary  Veneer  Mfg... 

...14% 

2,850.13 

Sliced  Veneer  Mfg..  

...20% 

4,071.61 

Sawn  Veneer  Mfg 

...  9% 

1,832.22 

Lumber  Mfg 

...  1% 

203.58 

Lumber  Core  Mfg 

...10% 

2,035.80 

Plywood 

...27% 

5,496.67 

100% 

$20,358.04 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


Accountino 
Revised  1922 


EXPENSE 


67 


In  distributing  the  charges  against  Equipment  Expense,  the  proportions 
shown  by  the  analysis  on  pages  33  and  34  are  reduced  as  nearly  as  practicable  to 
percentages  of  the  whole,  and  the  account  would  appear  as  follows,  the  charges 
being  taken  from  the  accounts  just  reviewed: 


Dr.  EQUIPMENT  EXPENSE Cn 


Tavfts  

.f  4.59.80 

Steam  Generation 

....  8%  $1,626.84 

Insurance  

l,446..'il 

Power 

....  8% 

i;626.84 

Interest  nn  Tnv''st,ment, 

'fi24.no 

General  Expense 

16% 

3,253.69 

Maintenance 

17,805.25 

Admin,  and  Sales  Expense.. 

....  2% 

406.71 

Rotary  Veneer 

....17% 

3,457.05 

Sliced  Veneer 

....  8% 

1,626.84 

Sawn  Veneer. 

....  5% 

1,016.78 

Lumber 

....  3% 

610.07 

Lumber  Cores 

....14% 

2,846.98 

Plywood 

....19% 

3,863.76 

100% 

$20,335.56 

$20,335.56 

The  various  items  making  up  the  cost  of  Steam  Generation  are  collected 
under  that  account  and  distributed  on  a predetermined  basis  according  to  the 
amount  of  steam  used  by  each  department  as  follows:  (See  page  38.) 


Dr.  STEAM  GENERATION  Cr. 


Equipment  Expense $ 1,626.84 

General  Expense 10%  $ 1,346.17 

Rent,  ..  407.16 

Rotary  Veneer 37%  4,980.81 

Fuel  Purchased 5,635.00 

Rpfn.sse  Riirned  .5,6.3.5.00 

Sliced  Veneer 16%  2,153.86 

Sawn  Veneer  7%  942.32 

Water  for  Roilera  129.3.5 

Lumber  Cores 30%  4,038.49 

Boiler  Insurance 28.30 

$13,461.65 

100%  $13,461.65 

The  cost  of  Power  is  collected  and  distributed  in  the  same  way  as  that  of 
Steam  Generation. 


Dr.  POWER  Cr. 


Equipment  Expense $ 1,626.84 

Rotary  Veneer. 26%  $ 1,659.63 

Purchased  Current 4,315.00 

Shced  Veneer 12%  765.98 

Power  Plant  Supphes 441.35 

Sawn  Veneer 19%  1,212.81 

Liunber 5%  319.16 

Lumber  Cores 18%  1,148.97 

Plywood 20%  1,276.64 

$ 6,383.19 

100%  $6,383.19 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


68 


EXPENSE 


V. 


Accounting 
Revised  1922 


The  cost  of  General  Manufacturing  Expense  is  distributed  to  product  on 
the  basis  of  the  number  of  man-hours  of  Labor  in  each  costing  department,  the 
proportions  being  reduced  to  percentages  to  facilitate  division  and  distribution. 


Dr.  GENERAL  MANUFACTURING  EXPENSE  Cr. 


Rent $ 2,850.13 

Equipment  Expense 3,253.69 

Steam  Generation 1,346.17 

Salaries  (Plant) 12,662.00 

Factory  Office  Supplies 38.59 

Factory  Office  Expense 72.00 

Factory  Supplies 1,428.00 

Factory  Expense 724.00 

Water,  General  Purposes 14.30 

Shipping  Department  Supplies 32.60 

Shipping  Department  Expense 148.40 

Purchased  Light  Current 361.40 


$22,931.28 


Rotary  Veneer 23% 

Sliced  Veneer 14% 

Sawn  Veneer 8% 

Lumber 2% 

Lumber  Cores .....17% 

Plywood 36% 


5,274.19 

3,210.38 

1,834.50 

458.63 

3,898.32 

8,255.26 


100% 


$22,931.28 


This  completes  the  collection  and  apportionment  of  Manufacturing  Expense, 
Following  is  shown  the  account  with  Administrative  and  Sales  Expense,  some- 
times termed  “Commerical  Cost.  ’Tt  is  distributed  on  the  same  basis  as  General 
Manufacturing  Expense,  namely  the  man-hours  of  Labor  in  each  department. 


Dr.  ADMINISTRATIVE  AND  SALES  EXPENSE  Cr. 


Taxes.. 409.00 

Insurance 4,983.60 

Rent 610.74 

Equipment  Expense 406.71 

Salaries  (Exec,  and  Clerical) 27,205.00 

Legal  and  Professional  Service 300.00 

Discounts  Paid 26.67 

Discounts  allowed  on  Sales 8,952.00 

Association  and  Club  Dues 760.00 

Donations 130.00 

Office  Stationery  and  Supplies 3,107.65 

Sundry  Office  Expense 967.50 

Postage,  Telephone  and  Telegraph.  376.00 

Walfare  Expense 500.00 

Miscellaneous  Traveling  Expense...  261.13 

Sundry  Administrative  Expense 123.65 

Sales  Salaries 4,000.00 

Sales  Commissions 8,819.49 

Sundry  Sales  Expense 4,567.24 

Advertising.. 2,150.00 


$68,656.38 


Rotary  Veneer  Mfg 

23% 

$15,790.97 

Sliced  Veneer 

14% 

9,611.89 

Sawn  Veneer. 

8% 

5,492.51 

Lumber 

2% 

1,373.13 

Lumber  Cores 

17% 

li;671.58 

Plywood 

36% 

24,716.30 

100% 

$68,656.38 


The  foregoing  accounts  cover  all  Expenses  and  it  will  be  noted  that  the 
grouping  of  the  various  items  and  their  redistribution  has  progressed  toward 
the  point  where  they  may  be  distributed  to  the  several  products,  and  the  Ex- 
pense accounts  with  these  products  will  now  be  shown,  the  entries  on  the  debit 
side  having  been  collected  from  the  accounts  just  reviewed.  The  “Inven- 
tory” entries  cover  the  amounts  of  Expense  represented  in  work  in  process  and 
in  finished  goods  in  stock  at  the  beginning  and  end  of  the  period. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


A.CCOUNTINO 

Revised  1922 


EXPENSE 


69 


Dr.  ROTARY  VENEER,  EXPENSE  Cr. 


Inventory $ 425.60 

Equipment  Expense 3,457.05 

Rent 2,850.13 

Steam  Generation 4,980.81 

Power  and  Light. 1,659.63 

General  Mfg.  Expense 5,274.19 


Administrative  and  Sales  Expense..  15,790.97 

$34,438.38 


Summary  Account  Rotary  Veneer.. ..$34, 132.28 


Inventory 306.10 


$34,438.38 


Equipment  Expense 1,626.84 

Steam  Generation 2,153.86 

Power 765.98 

General  Mfg.  Expense 3,210.38 

Administrative  and  Sales  Expense..  9,611.89 


$21,816.98 


Summary  Account  Sliced  Veneer. ...$21,552.76 


Inventory 264.22 

$21,816.98 


Dr.  SLICED  VENEER,  EXPENSE  Cr. 


Inventory $ 376.42 

Rent 4,071.61 


Dr.  SAWN  VENEER,  EXPENSE  Cr. 


Inventory 

Rent 

Equipment  Expense 

Steam  Generation 

.$  822.42 

1,832.22 
1,016.78 
942.32 

Summary  Account  Sawn  Veneer.. 

...$13,054.80 

Power 

General  Mfg.  Expense..  

Administrative  and  Sales  Expense. 

. 1,212.81 
1,834.50 
. 5,492.51 

Inventory 

98.76 

$13,153.56 

$13,153.56 

Dr. 

LUMBER, 

EXPENSE 

Cr. 

Inventory 

.$  76.24 

Summary  Account  Lumber 

$ 2,978.44 

Rent 

Equipment  Expense 

Power 

General  Mfg.  Expense 

203.58 

610.07 

319.16 

458.63 

Inventory 

62.37 

Administrative  and  Sales  Expense 

. 1,373.13 

$ 3,040.81 

0 

$ 3,040.81 

Dr. 


LUMBER  CORES,  EXPENSE 


Cr. 


Inventory $ 72.22 

Rent 2,035.80 

Equipment  Expense 2,846.98 

Steam  Generation 4,038.49 

Power 1,148.97 

General  Mfg.  Expense 3,898.32 


Administrative  and  Sales  Expense..  11,671.58 

$25,712.36 


Summary  Account  Lumber  Cores...$25,647.45 


Inventory 64.91 

$25,712.36 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


70 


EXPENSE 


V. 


Accounting 
Revised  1922 


Dr. 


PLYWOOD  EXPENSE 


Cr. 


Inventory $ 723.76 

Rent 0,496.67 

Equipment  Expense 3,863.76 

Power  and  Light 1,276.64 

General  Mfg.  Expense 8,255.26 


Department  Supplies  (Sandpaper)..  2,238.00 
Administrative  and  Sales  Expense..  24,716.30 

$46,570.39 


Summary  Account  Plywood $45,926.44 


Inventory 643.95 

$46,570..39 


This  completes  the  collection  and  distribution  of  all  the  Expense  items.  It 
will  be  seen  that  the  figures  given  in  the  Expense  Analysis  on  pages  27  to  42  have 
been  used  for  the  purpose  of  illustrative  comparison,  and  that  the  entries  cover 
the  transactions  for  a period  of  twelve  months.  Whatever  is  the  period  of 
distribution  used,  the  same  principle  should  be  followed  with  whatever  charges 
have  been  made  during  the  interval  since  the  last  distribution,  including  propor- 
tionate amounts  of  contingent,  reserve  and  annual  charges  such  as  those  for 
insurance,  depreciation,  taxes  and  interest  on  investment. 


MATERIAL 

We  now  come  to  the  subject  of  Material  accounting.  In  this  industry, 
materials  ordinarily  fall  under  three  heads  as  noted  on  page  43,  viz.:  Veneers, 
Lumber  Cores  and  Plywood.  That  the  proper  distribution  of  material  costs 
to  the  various  products  be  made,  it  is  recommended  that  the  material  accounts 
correspond  to  the  divisions  of  product.  Where  distinct  classes  of  these  main 
groupings  are  made  or  other  lines  are  manufactured,  corresponding  material 
accounts  should  exist.  Referring  again  to  the  example  used  in  Expense  Analysis, 
we  would  have  accounts  with  Rotary  Veneer,  Sliced  Veneer,  Sawn  Veneer,  Lum- 
ber, Lumber  Cores  and  Plywood.  There  are  also  cases  where  the  same  kind  of 
raw  material  is  used  for  two  or  more  products,  and  under  such  conditions  it  is 
most  practical  to  carry  a separate  account  with  this  item,  making  the  necessary 
distribution  to  the  others.  Logs  are  cited  as  an  illustration,  they  being  used  in 
the  manufacture  of  Rotary  Veneer,  Sliced  Veneer,  Sawn  Veneer  and  Lumber.  If, 
however,  certain  kinds  of  logs  are  used  exclusively  for  certain  products,  no 
division  of  their  cost  is  necessary  and  so  no  separate  account  is  required.  For 
example:  oak  may  be  purchased  and  used  exclusively  in  the  manufacture  of 
quarter-sawn  veneers;  gum  may  be  used  only  in  rotary-cut  cross-banding,  and 
chestnut  in  lumber.  It  might  be,  however,  that  walnut  logs  are  used  both  in 
lumber  and  in  sliced  veneers,  and  if  the  raw  material  for  both  products  comes 
from  the  same  lot  a division  must  be  made. 

Following  the  outline  of  our  original  example,  we  would  have  the  following 
material  accounts.  The  “Inventory”  entries  cover  material  stocks,  and  mater- 
ials in  work-in-process  and  in  finished  goods  on  hand  at  the  beginning  and  end 
of  the  period. 


Dr. 

LOGS 

Cr. 

Inventory 

Purchases 

$15,421.00 

88,684.25 

Rotary  Veneer 

Sliced  Veneer 

Sawn  Veneer.  

$47,864.55 

33,762.80 

10,372.60 

Inventory  Adjustment 

3,427.60 

Lumber 

Inventory 

4;276.50 

11,257.00 

$107,533.45 

$107,533.45 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


Accounting 
Revised  1922 


MATERIAL 


71 


« 


Dr. 

ROTARY  VENEER,  MATERIAL 

Cr. 

Inventory 

$ 416.25 

Summary  Account  Rotary  Veneer. .$47,640.00 

Logs — 

47,864.55 

Inventory  Adjustment 

27.55 

Inventory 

613.25 

$48,280.80 

$48,280.80 

Dr. 

SLICED  VENE 

ER,  MATERIAL 

Cr. 

Inventory 

$ 215.45 

Summary  Account  Sliced  Veneer.. 

..$34,197.35 

Logs._ 

33,762.80 

Inventory 

143.65 

Inventory  Adjustment 

362.75 

$34,341.00 

$34,341.00 

Dr. 

SAWN  VENEER,  MATERIAL 

Cr. 

Inventory 1 

$ 628.95 

Summary  Account  Sawn  Veneer.... 

..$10,770.30 

Logs.. 

10,372.60 

Inventory 

496.25 

Inventory  Adjustment 

265.00 

$11,266.55 

$11,266.55 

Dr. 

LUMBER,  ? 

MATERIAL 

Cr. 

Inventory 

$ 135.50 

Summary  Account  Lumber 

..$  4,638.25 

Logs.  

4,276.50 

Inventory 

98.75 

Inventory  Adjustment 

325.00 

$ 4,737.00 

$4,737.00 

Dr. 

LUMBER  CORES,  MATERIAL 

Cr. 

Inventory 

Lumber 

Glue._ 

Inventory  Adjustment 

$ 672.34 

60,254.70 

3,752.25 

640.15 

Summary  Account  Lumber  Cores 

Inventory 

-..$64,781.17 

538.27 

$65,319.44 

$65,319.44 

Dr. 

PLYWOOD, 

MATERIAL 

Cr. 

Inventory 

Veneers 

Lumber  Cores 

Glue.__ 

Tape 

Pap^  Cauls 

Paclmg  Materials.- 

$ 2,176.50 

60,120.05 

33,271.50 

25,752.40 

2,204.45 

126.50 

4,722.75 

Inventory  Adjustment 

Inventory  Adjustment 

Summary  Account  Plywood. 

...$  222.45 

176.50 
.$126,509.00 

Inventory  Adjustment 

Inventory  Adjustment 

325.50 

57.65 

Inventory 

...  1,849.35 

$128,757.30 

$128,757.30 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


72 


LABOR 


V, 


Accountino 
Revised  1922 


LABOR 

The  factor  of  Labor  costs  may  be  taken  care  of  in  the  books  by  charging  the 
respective  costing  department  Summary  Accounts  with  the  amounts  shown  by 
the  payroll  to  be  chargeable  to  these  departments.  To  facilitate  this,  the 
Labor  payroll  should  be  divided  into  one  group  for  General  Indirect  Labor  and 
one  group  each  for  the  respective  costing  departments.  The  proportion  of 
General  Indirect  Labor  assignable  to  each  costing  department  may  be  carried 
forward  and  added  to  the  Departmental  Labor  in  each  case  to  show  a total  for 
all  Labor  for  each  department.  The  following  illustration  is  given,  no  attempt 
being  made  to  incorporate  irrelevent  details. 


LABOR  PAYROLL 
General  Indirect  Labor 


Name 

HOURS 

DAILY 

Total 

Rate 

Amount 

Watchman 

12 

12 

12 

12  12  12  12  84 

S35.00 

Millwright 

8 

8 

10 

10  10  12 

58 

60.00 

Engineer 

10 

8 

8 

8 10  12 

56 

60.00 

Fireman.  

10 

10 

10 

10  10  10 

60 

.40 

24.00 

Fireman.  

10 

10 

10 

10  10  10 

60 

.40 

24.00 

Fireman.  

10 

10 

10 

10  10  10 

60 

.40 

24.00 

Fireman.  

10 

10 

10 

10  10  10 

60 

.40 

24.00 

Trucker 

8 

8 

8 

8 8 8 

48 

.30 

14.40 

Trucker 

0 

8 

8 

8 8 4 

36 

.30 

10.80 

Totals  (See  below) 

522 

$276.20 

Distribution  to  Departments 

To  Rotary  Veneer 

31% 

162 

$85.62 

To  Shced  Veneer 

14% 

73 

38.67 

To  Sawn  Veneer 

8% 

42 

22.10 

To  Lumber 

1% 

5 

2.76 

To  Lumber  Cores 

26% 

136 

71.81 

To  Plywood 

20% 

104 

55.24 

Totals 

100% 

522 

$276.20 

Departmental  Labor 

Rotary  Veneer 


Foreman 

8 

8 

8 8 

8 

8 

48 

$60.00 

Foreman 

8 

8 

8 8 

8 

8 

48 

48.00 

Operative 

8 

8 

8 8 

8 

8 

48 

.50 

24.00 

* * * 

* 

♦ * 

♦ ♦ 

Laborer 

8 

8 

8 8 

8 

8 

48 

.35 

16.80 

General  Indirect  Labor  (See  above).— 

162 

85.62 

Totals 

1639 

Sliced  Veneer 

Foreman 

8 

8 

8 8 

8 

8 

48 

$60.00 

Operative 

. 8 

8 

8 8 

8 

8 

48 

.60 

28.80 

Operative 

. 8 

8 

8 8 
* 3):  % 

8 

♦ 

8 

♦ * 

48 

♦ ♦ 

.40 

19.20 

Laborer 

. 8 

8 

8 8 

8 

8 

48 

.30 

14.40 

General  Indirect  Labor  (See  above).— 

73 

38.67 

Totals 

956 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


Accountino 
Revised  1922 


LABOR 


73 


LABOR  PAYROLL— 

Continued 

Departmental  Labor- 

—Continued 

Sawn  Veneer 

Name 

HOURS  DAILY 

Total 

Rate 

Amount 

Foreman 

. 8 

8 

8 8 

8 

8 

48 

$55.00 

Operative 

. 8 

8 

8 8 

8 

8 

48 

.55 

26.40 

Operative 

. 8 

8 

8 8 

8 

8 

48 

.40 

19.20 

* * * 

* 

* ♦ 

* * 

Laborer 

. 0 

8 

8 8 

8 

0 

32 

.30 

9.60 

General  Indirect  Labor  (See  above)... 

42 

22.10 

Totals 

570 

$193.80 

Lumber 

Operative 

8 

8 

8 8 

8 

8 

48 

.50 

$24.00 

Laborer 

. 8 

8 

8 8 

8 

8 

48 

.30 

14.40 

General  Indirect  Labor  (See  above)— 

5 

2.76 

Totals 

101 

41.16 

Lumber  Cores 

Foreman 

8 

8 

8 8 

8 

8 

48 

$50.00 

Operative 

8 

8 

8 8 

8 

8 

48 

.50 

24.00 

Operative 

8 

8 

8 8 

8 

8 

48 

.40 

19.20 

4c 

* 

* * 

* ♦ 

Laborer 

0 

8 

8 8 

8 

8 

40 

.35 

14.00 

General  Indirect  Labor  (See  above)—. 

136 

71.81 

Totals 

1207 

422.45 

Plywood 

Foreman 

8 

8 

8 8 

8 

8 

48 

$60.00 

Foreman 

8 

8 

8 8 

8 

8 

48 

55.00 

Operative 

8 

8 

8 8 

8 

8 

48 

.60 

28.80 

* ^ * 

♦ 

♦ * 

9|c  4: 

Laborer 

8 

8 

8 8 

8 

0 

40 

.35 

14.00 

General  Indirect  Labor 

("See  above!. 

104 

55.24 

Totals 

2540 

843.28 

Grand  Totals 7013  $2,363.56 


The  ledger  account  with  Labor*  would  then  appear  as  follows,  the  “Inven- 
tory” entries  covering  labor  represented  by  work-in-process  and  in  finished  goods 
on  hand  at  the  beginning  and  end  of  the  period : 


Dr.  LABOR  Cr. 

Inventory $ 2,690.27 


Pa3ToUs._ 118,090.40 


Rotary  Veneer. $26,270.00 

Sliced  Veneer 16,873.50 

Sawn  Veneer 9,690.00 

Lumber 2,058.00 

Lumber  Cores 21,122.50 

Plywood 42,164.40 

Inventory 2,602.27 


$120,780.67 


$120,780.67 


* It  is  recommended  that  separate  Labor  accounts  be  kept  with  each  costing  department. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


74 


SUMMARY 


VAccountinq 
• Revised  1922 


SUMMARY 

We  have  taken  all  of  the  items  of  cost,  have  classified  them  and  grouped 
them  into  their  proper  accounts,  whether  of  Expense,  Materials  or  Labor,  and 
have  divided  each  of  these  factors  in  turn  according  to  the  proper  proportions 
chargeable  to  each  class  of  product.  It  now  remains  to  collect  the  three  factors 
of  cost  of  each  product  as  follows,  the  "Inventory”  entries  covering  material 
stocks,  and  Material,  Labor  and  Expense  in  goods  in  process  and  in  finished 
goods  on  hand  at  the  beginning  and  end  of  the  period: 


Dr ^ ROTARY  VENEER,  Summary  Account  Cr. 


Expense 

$34,132.38 

Sales $132,835.20 

Material 

Labor 

Profit  and  Loss 

47,640.00 

26,270.00 

24,792.92 

$132,835.20 

$132,835.20 

Dr. 


SLICED  VENEER,  Summary  Account 


Cr. 


Expen.se 

Material 

Labor 

Profit  and  Loss. 


.$21,552.70 
34,197.35 
16,873.50 
. 16,087.56 


Sales 


.$88,711.17 


$88,711.17 


$88,711.17 


Dr. 


SAWN  VENEER,  Summary  Account 


Cr. 


Expense 

Material 

Labor 

Profit  and  Loss. 


$13,054.80 
. 10,770.30 
. 9,690.00 
. 7,060.04 


Sales 


$40,575.14 


$40,575.14 


$40,575.14 


Dr. 


LUMBER,  Summary  Account 


Cr. 


Expense 

Material 

Labor. 

Profit  and  Loss. 


2,978.44 

4,638.25 

2,058.00 

1,821.68 


Sales 


.$11,496.37 


$11,496.37 


$11,496.37 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


PLYWOOD  COST  BALANCE  RECORD 


EXPENSE 

LABOR 

MATERIAL 

COST 

SALES 

PROFIT 

ACTUAL 

STANDARD 

BALANCE 

ACTUAL 

STANDARD 

BALANCE 

ACTUAL 

STANDARD 

BALANCE 

ACTUAL 

STANDARD 

BALANCE 

Delivered,  January 

$ 3,862.70 

$ 3,807.60 

$ 65.10 

$ 3,513.70 

$ 3,501.72 

$ 11.98 

$ 10,541.10 

$ 10,550.75 

$9.65 

$ 17,917.50 

$ 17,860.07 

57.43 

$ 19,680.50 

$ 1,763.00 

Totals  to  date 

3,862.70 

3,807.60 

55.10 

3,513.70 

3,501.72 

11.98 

10,541.10 

10,550.75 

9.65 

17,917.50 

17,860.07 

57.43 

19,680.50 

1,763.00 

Delivered,  February 

3,785.60 

3,752 . 55 

33.05 

3,342 . 50 

3,350.27 

7.77 

10,027.50 

10,102.50 

75.00 

17,155.60 

17,205.32 

49.72 

19,080.90 

1,925.30 

Totals  to  date 

7,648.30 

7,560.15 

88.15 

6,856.20 

6,851.99 

14.21 

20,568.60 

20,653.25 

84.65 

35,073.10 

35,065.39 

7.71 

38,761.40 

3,688.30 

Delivered.  March 

3,787.40 

3,732.35 

55.05 

3,176.42 

3,180.25 

3.83 

9,529.26 

9,605.27 

76.01 

16,493.08 

16,517.87 

24 . 79 

18,042.70 

1,549.62 

Totals  to  date 

11,435.70 

11,292.50 

U3.20 

10,032.62 

10,032.24 

0.38 

30,097.86 

30,258.52 

160.66 

51,566.18 

51,583.26 

17.08 

56,804 . 10 

5,237.92 

Delivered,  April 

Inventory  Adjustment 

3,382.55 

3,362.60 

19.96 

3,243.54 

3,240.66 

2.88 

9,730.62 

222.45 

9,735.65 

5.03 

222.45 

16,356.71  \ 
222.45  / 

16,338.91 

240.25 

18,205.05 

1,625.89 

Totals  to  date 

14,818.25 

14,655.10 

163.16 

13,276.16 

13,272.90 

3.26 

40,050.93 

39,994.17 

56.76 

68,145.34 

67,922.17 

223.17 

75,009. 15 

6,863.81 

Delivered,  May 

3,272.40 

3,260.25 

12.15 

3,250.60 

3,178.27 

72.33 

9,751.80 

9,757.60 

5.80 

16,274.80 

16,193.12 

78.68 

18,170.30 

1,895.50 

Totals  to  date 

18,090.65 

17,915.35 

176.30 

16,526.76 

16,451 . 17 

75.59 

49,802.73 

49,751.77 

60.96 

84,420.14 

84,118.29 

301.85 

93,179.45 

8,759.31 

Delivered,  June 

Inventory  Adjustment 

3,262.40 

3,250.25 

12.16 

3,125.72 

3,122.29 

3.43 

9,377.16 

325.60 

9,382.17 

5.01 

325.50 

15,765.28  \ 
325.50  1 

15,754.71 

314.93 

17,652.00 

2,212.22 

Totals  to  date 

21,353.05 

21,165.60 

187.45 

19,652.48 

19,573.46 

79.00 

58,854.39 

59,133.94 

279.55 

99,859.92 

99,873 . 00 

13.08 

110,831.45 

10,971.53 

Delivered,  July 

3,310.15 

3,325.20 

15.05 

3,270.56 

3,276.90 

6.34 

9,811.68 

9,827.35 

15.67 

16,392.39 

16,429.45 

37 . 06 

18,335.75 

1,943.36 

Totals  to  date 

24,663.20 

24,490.80 

172.40 

22,923.04 

22,850.36 

72.68 

68,666.07 

68,961.29 

295.22 

116,252.31 

116,302.45 

50.14 

129,167.20 

12,914.89 

Delivered,  August 

3,527.20 

3,516.25 

10.95 

3,340.76 

3,351.63 

10.87 

10,022.28 

10,116.35 

94.07 

16,890.24 

16,984.23 

93.99 

18,900.25 

2,010.01 

Totals  to  date 

28,190.40 

28,007.05 

183.35 

26,263.80 

26,201 . 99 

61.80 

18,688.35 

79,077.64 

389.29 

133,142.55 

133,286.68 

144.13 

148,067.45 

14,924.90 

Delivered,  September 

Inventory  Adjustment 

3,527.60 

3,562.60 

35.00 

3,460.72 

3,452.90 

7.82 

10,382.16 

176.50 

10,398.23 

16.07 

176.60 

17,370.48  \ 
176.50  / 

17,413.73 

133.26 

19,425.60 

1,878.62 

Totals  to  date 

31,718.00 

31,569.65 

148.36 

29,724.52 

29,654.89 

69.63 

89,247.01 

89,475.87 

228.86 

150,689.53 

150,700.41 

10.88 

167,493.05 

16,803.52 

Delivered,  October 

4,070.60 

4,091.70 

21.10 

3,725.40 

3,716.63 

8.77 

11,176.20 

11,207.60 

31.40 

18,972.20 

19,015.93 

43.73 

21,092.65 

2,120.45 

Totals  to  date 

35,788.60 

35,661.35 

127.25 

33,449.92 

33,371.52 

78.40 

100,423.21 

100,683.47 

260.26 

169,661.73 

169,716.34 

54.61 

188,585.70 

18,923.97 

Delivered,  November.  

4,186.25 

4,198.20 

11.95 

4,272.28 

4,270.92 

1.36 

12,816.84 

12,872.28 

55.44 

21,275.37 

21,341.40 

66.03 

23,870.65 

2,036.30 

Totals  to  date 

39,974.85 

39,859.55 

115.30 

37,722.20 

37,642.44 

79.76 

113,240.05 

113,555.75 

315.70 

190,937.10 

191,057.74 

120.64 

212,456.35 

21,519.25 

Delivered,  December 

Inventory  Adjustment 

5,951.59 

6,375.74 

424.15 

4,442.20 

4,422.16 

20.04 

13,326.60 

67.65 

13,412.96 

86.36 

57.65 

23,720.391 
57.65  f 

24,210.86 

518.12 

24,832.55 

1,169.81 

Totals  for  Year 

$45,926.44 

$46,235 . 29 

$308.85 

$42,164.40 

$42,064.60 

%99.80 

$126,509.00 

$126,968.71 

$ 459.71 

$214,599.84 

$215,268.60 

t $668.76 

$237,288.90 

§ $22,689.06 

t Pro6t  on  Costing.  §Total  Net  Profit.  Italics  indicate  deductions  which  would  appear  in  Red. 


Accounting 
• Revised  1922 


CHECKING  COSTS 


75 


Dr. 

LUMBER  CORES, 

Summary  Account 

Cr. 

Expense 

647.45 

Sales 

113,732.34 

Material 

64,781.17 

Labor 

21,122.50 

Profit  and  Loss 

. 2,181.22 

$113,732.34 

$113,732.34 

Dr. 

PLYWOOD,  Su 

mmary  Account 

Cr. 

$45,926.44 

‘Sales 

$237,288.90 

* Material 

126,509.00 

*Labor 

42,164.40 

‘Total  Cost 

214,599.84 

‘Profit  and  Loss 

22,689.06 

$237,288.90 

$237,288.90 

* See  Cost  Balance  Record. 


CHECKING  COSTS 

These  entries  complete  the  records  in  the  general  accounts  as  far  as  the 
requirements  of  costing  are  concerned,  and  furnish  the  totals  of  actual  expen- 
ditures for  Expense,  Materials  and  Labor  for  each  costing  department.  It  now 
remains  to  compare  these  actual  expenditures  with  the  corresponding  totals  on 
the  cost  records. 

The  accompanying  “Cost  Balance  Record”  is  that  used  in  connection  with 
Engineering  Costs,  but  a similar  form  may  be  used  with  any  cost  system  which 
furnishes  records  of  actual  and  charged  costs  of  Expense,  Materials  and  Labor 
by  departments.  A separate  sheet  is  used  for  each  class  of  product,  the  one 
given  in  the  example  showing  the  record  for  Plywood.  If  desired  “Manu- 
facturing Expense”  and  “Administrative  and  Sales  Expense”  may  be  kept 
separate  instead  of  being  combined  under  the  general  head  of  “Expense”  as 
shown  on  this  sample  sheet. 

Under  the  columns  headed  “Actual,”  appear  the  figures  taken  from  the 
books,  and  under  “Standard,”  those  from  the  cost  records.  The  variations 
between  actual,  and  figured  costs  appear  in  the  “Balance”  column.  The  foot- 
ing of  the  balance  column  under  “Total  Cost”  gives  the  total  net  difference 
which  is  the  profit  or  loss  (as  the  case  may  be)  on  costing.  The  total  net  profit 
or  loss  is  shown  in  the  last  column,  which  gives  the  difference  between  selling 
price  and  actual  cost. 

The  “Inventory  Adjustments”  noted  on  this  balance  sheet  and  in  the 
ledger  accounts  are  those  occasioned  by  the  necessity  of  bringing  inventory 
values  up  to  date,  and  may  be  owing  to  discrepancies  in  quanities  revealed  by 
actual  inventories  of  stock  or  fluctuations  in  market  values. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V. 


AcConNTINQ 
Revise  1922 


REQUIREMENTS 


63 


ACCOUNTING 

The  prime  purpose  of  any  cost  system  is  to  obtain  the  cost  of  specific  products. 
We  are,  of  course,  interested  to  know  whether  the  Imsiness  as  a whole  is  profi- 
table and  can  obtain  this  information  from  the  general  accounts,  but  if  we  wish 
to  insure  a profit  on  each  article  we  make,  we  must  take  the  steps  necessary  to 
keep  currently  informed  on  the  cost  of  each  article.  General  accounting  cannot 
give  this  information;  hence  “costing  systems.”  However,  with  whatever 
methods  are  used  for  obtaining  costs,  there  must  be  provided  some  means  for 
checking  cost  records  with  the  general  accounts,  else  “costs”  will  be  simply  esti- 
mates or  approximations.  We  may  feel  sure  of  the  theoretical  correctness  of  our 
methods  and  yet  not  be  able  to  satisfy  even  ourselves  of  the  certainty  of  it.  If 
we  have  no  means  of  proving  that  our  costs  are  correct  our  cost  system  is 
misnamed  and  we  should  call  it  our  “estimating  system.” 

A case  of  this  kind  was  recently  brought  to  the  attention  of  the  writer. 
According  to  the  cost  figures  of  a certain  veneer  manufacturing  concern  it  was 
making  a certain  definite  percentage  of  profit  on  every  sale — a percentage  which 
had  been  determined  upon  as  a part  of  the  sales  policy  of  the  company.  The 
plant  was  operating  at  a fairly  uniform  rate  of  production,  close  to  capacity,  and 
so  the  management  felt  quite  well  assured  of  a predetermined  amount  of  profit 
on  the  year’s  operations;  in  round  numbers  between  $35,000.00  and  $40,000.00. 
It  was  not  until  the  inventory  was  taken  at  the  end  of  the  twelve  months  and 
the  books  balanced,  however,  that  the  real  condition  was  known,  and  the  melan- 
choly fact  disclosed  that  the  year’s  labor  had  netted  $12.00.  Is  it  any  wonder 
that  the  “cost  system”  was  kicked  out  the  back  door? 

It  is  not  the  intention  of  this  text  to  convey  the  impression  that  any  system 
of  costing  may  be  brought  to  the  state  of  perfection  where  totals  as  shown  by 
the  cost  records  will  check  absolutely  with  the  totals  of  actual  expenditures  for 
Expense,  Materials  and  Labor  as  given  by  the  general  accounts,  but  if  any  cost 
system  is  to  be  safe  and  efficient,  it  must  be  possible  to  draw  accurate  com- 
parisons periodically  and  so  keep  the  balance  reasonably  uniform. 

Although  costs  must  be  tied  into  the  books  to  be  of  the  greatest  value,  this, 
fortunately,  does  not  necessitate  a particular  system  of  accounting.  Any 
accounting  system  may  be  made  to  harmonize  sufficiently  with  the  costing 
methods  to  give  the  desired  results  and,  as  a rule,  few  changes  are  necessary  to 
bring  this  about.  The  observance  of  the  fundamental  principles  of  correct 
costing  and  accounting  by  all  members  of  an  industry  is  essential  to  harmony, 
mutual  understanding,  stability  and  success,  but  variations  in  the  methods  of 
application  of  these  principles  are  not  necessarily  a detriment  although  uni- 
formity is  of  course  to  be  desired  in  so  far  as  is  practicable. 

The  essential  requirements  of  any  accounting  system  as  regards  costing  in 
the  Plywood  industry  may  be  summed  up  in  furnishing  the  totals  of  expenditures 
for  Expense,  Materials  and  Labor  for  each  costing  department  at  regular 
stated  intervals. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


64 


EXPENSE 


Accountiko 
• Revised  1922 


The  term  “Costing  Department”  must  not  be  confused  with  the  word 
department  as  commonly  applied  to  geographical  divisions  of  a plant  which 
may  not  coincide  with  processes.  A plywood  plant  making  its  own  veneers 
may  have  the  dryers  for  wet  veneers  and  the  re-dryers  for  purchased  or  other 
dry  veneers  in  the  same  room,  but  the  former  are  used  in  the  manufacture  of 
veneers,  a product  by  itself,  while  the  latter  form  part  of  the  equipment  used  in 
the  manufacture  of  plywood.  In  costing,  departments  are  recognized  by  their 
functions  or  products.  Some  may  be  termed  indirect,  such  as  the  power  plant, 
while  others  are  direct  or  productive  like  the  department  which  makes  cores  for 
example,  and  it  is  the  aim  to  distribute,  directly  or  indirectly,  the  cost  of  each 
department  to  the  respective  finished  products.  In  a plywood  plant,  beginning 
its  processes  with  logs  and  lumber  as  raw  materials,  these  products  would  be 
Veneers,  Lumber  Cores  and  Plywood,  while  in  the  case  of  a concern  which 
purchases  its  veneers  and  cores  and  merely  assembles  them  into  Plywood,  there 
would  be  only  the  one  product. 

Whether  there  be  one  product  or  several,  the  cost  of  each  is  made  up  of  the 
factors  of  Expense,  Material  and  Labor,  and  these  in  turn  are  composed  of 
elements  which  have  been  distributed  from  larger  accounts  representing  the  sums 
of  numerous  transactions.  So  the  whole  problem  in  co-ordinating  the  book- 
keeping system  with  the  costing  system  is  that  of  making  it  possible  to  make 
certain  groupings  of  expenditures  which  are  comparable  with  similar  groupings 
in  the  cost  records,  that  the  cost  of  each  product  as  shown  by  the  latter  may 
be  certified. 

It  is  the  purpose  of  this  chapter  simply  to  outline  from  a cost  engineer’s 
standpoint  what  may  be  expected  of  any  system  of  general  accounting  rather 
than  to  attempt  to  give  detailed  examples  of  any  specific  methods,  and  the 
illustrations  which  will  be  given  are  not  intended  to  serve  any  purpose  beyond 
that  of  exemplifying  fundamental  principles. 


EXPENSE 

Taking  up  the  treatment  of  the  different  elements  of  cost  as  set  forth  in 
proceeding  pages,  we  may  consider  first  the  general  subject  of  Expense  with  its 
sub-divisions.  For  convenience  of  comparison  we  will  use  the  figures  from  the 
example  given  on  page  27  to  42  inclusive.  While  the  figures  there  shown  repre- 
sent budgeted  annual  expenses,  they  may  be  used  to  represent  the  actual 
monthly  entries. 

In  studying  this  chapter  the  Expense  Analysis  referred  to  should  be  kept 
before  the  reader,  as  the  principles  of  distribution  are  the  same,  also  the  pro- 
portions used. 

Beginning  with  Taxes,  it  will  be  seen  that  Corporation  Taxes  are  charged  to 
Administrative  and  Sales  Expense  and  that  Real  and  Personal  Taxes  are  dis- 
tributed to  Insurance,  Rent,  and  Equipment  Expense,  on  the  basis  of  the  valua- 
tions of  Land  and  Buildings,  Sprinkler  Equipment,  and  Manufacturing  Equipment 
respectively. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


Accountinq 
• Revised  1922 


EXPENSE 


65 


Dr. 

TAXES 

Cr. 

Corporation  Taxes 

$ 409.00 

Administrative  and  Sales  Exp 

..$  409.00 

Real  and  Personal  Taxes 

1,045.00 

Insurance,  6%  of  R.  & P.  Tax 

62.70 

Rent,  50%  of  R.  & P.  Tax 

522.50 

Equip.  Ex.  44%  R.  & P.  Tax 

459.80 

$1,454.00 

$1,454.00 

The  account  with  Insurance  would  appear  as  follows,  the  total  of  Fire  and 
Tornado  Insurance  and  charges  against  Sprinkler  System  being  apportioned 
to  Rent,  and  Equipment  Expense  on  the  basis  of  the  valuation  of  Buildings  and 
Equipment  (not  including  Sprinkler  System) : 


Dr.  INSURANCE  Cr. 


Rent,  51%  of  $2,952.05 $ 1,505.54 

Equip.  Exp.,  49%,  of  $2,952.05 1,446.51 


Fire  Insurance $ 843.75 

Tornado  Insurance 285.60 

Int.  on  Inv.  in  Sprinkler  System....  960.00 

Taxes  on  Sprinkler  System 62.70 

Maintenance,  Sprinkler  System 800.00 

(Total  above  $2,952.05.) 

Boiler  Insurance 28.30 

Paymaster  Insurance 16.20 

Riot  and  Civil  Commotion  Ins 475.00 

Credit  Indemnity  Insurance 757.50 

Workmen’s  Compensation  Ins 3,713.00 

Public  Liability  Insurance.- 14.30 

Elevator  Insurance 7.60 

(Total  above  $4,983.60.) 


$ 7,963.95 


Steam  Generation 28.30 

Admin,  and  Sales  Expense 4,983.60 


$ 7,963.95 


In  like  manner.  Interest  on  Investment  is  charged  against  Rent  and  certain 
Equipment  (a  corresponding  credit  being  made  to  Profit  and  Loss),  and  dis- 
tributed according  to  valuation  of  same  as  follows: 


Dr.  INTEREST  ON  INVESTMENT  Cr. 


Int.  on  Inv.  in  Bldgs  and  Land $ 7,440.00 

Int.  on  Inv.  in  Sprinkler  System 960.00 

Int.  on  Inv.  in  Elec.  P.  and  L.  Eq..  420.00 

Int.  on  Inv.  in  Auto  Trucks 204.00 

Rent $ 7,440.00 

Insurance 960.00 

Equipment  Expense 624.00 

$ 9,024.00 

$ 9,024.00 

It  is  recommended  that  a Maintenance  Reserve  Account  be  set  up.  This 
account  would  be  charged  with  budgeted  amounts  covering  estimated  Depre- 
ciation and  Obsolescence,  and  actual  expenditures  for  Repairs.  The  latter  should 
cover  cost  of  Materials  for  Repairs  and  Replacements  and  outside  Labor  only  for 
same,  the  labor  by  employees  on  the  payroll  being  taken  care  of  under  “Labor” 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


66 EXPENSE V- 

as  shown  later.  The  account  is  credited  with  amounts  carried  to  Rent,  Insurance, 
and  Equipment  Expense  and  which  are  based  upon  predetermined  percentages  of 
valuation  calculated  to  represent  normal  Maintenance  Expense;  and  with  pro- 
ceeds from  the  sale  of  obsolete  and  wornout  equipment.  The  following  example 
of  such  an  account  is  given  by  way  of  illustration. 


Dr.  MAINTENANCE  RESERVE Cr. 

Sale  of  Discarded  Equipment.- $ 325.00 

Building  Rent 10,440.00 


Balance  forward $ 1,100.00 

Depreciation  of  Buildings 5,800.00 

Repairs  to  Buildings 1,374.00 

Depreciation  of  Kilns 315.00 

Repairs  to  Kilns 265.00 

Depreciation  of  Sprinkler  System....  480.00 

Repairs  to  Sprinkler  System 22.00 

Depreciation  of  Auto  Trucks. 680.00 

Repairs  to  Auto  Trucks 263.50 

Depreciation  of  Other  Equipment..  11,303.50 
Repairs  to  Other  Equipment.— 4,726.35 

Equipment  Replacements 2,325.00 

Balance  forward 1,165.90 


$29,820.25 


Kiln  Rent 450.00 

Insurance 800.00 

Equipment  Expense 17,805.25 


$29,820.25 


Following  are  shown  the  charges  to  Rent  and  its  distribution.  It  will  be 
noted  that  the  debits  originate  in  the  preceeding  accounts.  The  distribution 
is  made  on  the  basis  of  a percentage  schedule  made  up  from  the  summary  of 
Land  and  Building  Rental  charges  as  shown  on  page  37,  these  having  been 
based  upon  areas  occupied  by  departments,  variable  rates  of  depreciation,  etc. 


Dr. 

RENT 

Cr. 

Int.  on  Inv.  in  Land  and  Bldgs. 

7,440.00 

Admin,  and  Sales  Expense 

- 3% 

$ 610.74 

Taxes  on  Land  and  Bldgs 

F,9.?.  .f;n 

General  Expense 

14% 

2,850.13 

Insurance  on  Buildings.  

l,.5n5..54 

Steam  Generation 

- 2% 

'407.16 

Maintenance  of  Mfg.  Bldgs 

10,440.00 

Rotary  Veneer  Mfg.._ 

-14% 

2,850.13 

Maintenance  of  Kiln  Bldgs 

450.00 

Shced  Veneer  Mfg._  

-20% 

4,071.61 

Sawn  Veneer  Mfg 

- 9% 

1,832.22 

Lumber  Mfg 

- 1% 

203.58 

Lumber  Core  Mfg 

-10% 

2,035.80 

Plywood 

-27% 

5,496.67 

$20,358.04 

100% 

$20,358.04 

- 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


Accounting 
Revised  1922 


EXPENSE 


67 


In  distributing  the  charges  against  Equipment  Expense,  the  proportions 
shown  by  the  analysis  on  pages  33  and  34  are  reduced  as  nearly  as  practicable  to 
percentages  of  the  whole,  and  the  account  would  appear  as  follows,  the  charges 
being  taken  from  the  accounts  just  reviewed: 


Dr.  EQUIPMENT  EXPENSE Cr. 


Tavps 

$ 459.80 

Steam  Generation 

....  8%  $1,626.84 

Insurance  

1,446.51 

Power 

....  8%  1,626.84 

Interest  op  Tpvf^stmpnt 

'624.00 

General  Expense 

16%  3;253.69 

Mnintpnnnpp 

17,805.25 

Admin,  and  Sales  Expense.. 

....  2%  '406.71 

$20,335.56 

Rotary  Veneer 

Sliced  Veneer 

Sawn  Veneer. 

Lumber 

’ Lumber  Cores 

Plywood 

♦ 

....17%  3,457.05 
8%  1,626.84 
5%  1,016.78 
....  3%  610.07 

....14%  2,846.98 
....19%  3,863.76 

100% 

$20,335.56 

The  various  items  making  up  the  cost  of  Steam  Generation  are  collected 
under  that  account  and  distributed  on  a predetermined  basis  according  to  the 
amount  of  steam  used  by  each  department  as  follows:  (See  page  38.) 


Dr. 


STEAM  GENERATION 


Cr. 


Equipment  Expense $ 1,626.84 

Rent 407.16 

Fuel  Purchased 5,635.00 

Refuse  Burned 5,635.00 

Water  for  Boilers 129.35 

Boiler  Insurance 28.30 


General  Expense 10%  $ 1,346.17 

Rotary  Veneer 37%  4,980.81 

Sliced  Veneer 16%  2,153.86 

Sawn  Veneer 7%  942.32 

Lumber  Cores 30%  4,038.49 


$13,461.65 


100%  $13,461.65 


The  cost  of  Power  is  collected  and  distributed  in  the  same  way  as  that  of 
Steam  Generation. 


Dr.  POWER  Cr. 


Equipment  Expense $ 1,626.84 

Rotary  Veneer. 26%  $ 1,659.63 

Purchased  Current 4,315.00 

Sliced  Veneer 12%  765.98 

Power  Plant  Supplies 441.35 

Sawn  Veneer  , 19%  1,212.81 

Lumber 5%  319.16 

Lumber  Cores 18%  1,148.97 

Plywood 20%  1,276.64 

$ 6,383.19 

100%  $6,383.19 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


68 


EXPENSE 


V. 


Accounting 
Revised  1922 


The  cost  of  General  Manufacturing  Expense  is  distributed  to  product  on 
the  basis  of  the  number  of  man-hours  of  Labor  in  each  costing  department,  the 
proportions  being  reduced  to  percentages  to  facilitate  division  and  distribution. 


Dr.  GENERAL  MANUFACTURING  EXPENSE  Cr. 


Rent $ 2,850.13 

Equipment  Expense 3,253.69 

Steam  Generation 1,346.17 

Salaries  (Plant) 12,662.00 

Factory  Office  Supplies 38.59 

Factory  Office  Expense 72.00 

Factory  Supplies 1,428.00 

Factory  Expense 724.00 

Water,  General  Purposes 14.30 

Shipping  Department  Supplies 32.60 

Shipping  Department  Expense 148.40 

Purchased  Light  Current 361.40 


$22,931.28 


Rotary  Veneer 

23% 

$ 5,274.19 

Sliced  Veneer 

14% 

3,210.38 

Sawn  Veneer.  __  

8% 

1,834.50 

Lumber 

2% 

458.63 

Lumber  Cores 

17%  . 

3,898.32 

Plywood 

36% 

8,255.26 

100% 

$22,931.28 


This  completes  the  collection  and  apportionment  of  Manufacturing  Expense, 
Following  is  shown  the  account  with  Administrative  and  Sales  Expense,  some- 
times termed  “Commerical  Cost.  ’Tt  is  distributed  on  the  same  basis  as  General 
Manufacturing  Expense,  namely  the  man-hours  of  Labor  in  each  department. 


Dr.  ADMINISTRATIVE  AND  SALES  EXPENSE  Cr. 


Taxes.. 409.00 

Insurance 4,983.60 

Rotary  Veneer  Mfg 23%  $15,790.97 

Sliced  Veneer 14%  9,611.89 

Rent '610.74 

Sawn  Veneer. 8%  5,492.51 

Equipment  Expense 406.71 

Lumber 2%  1,373.13 

Salaries  (Exec,  and  Clerical) 27,205.00 

Lumber  Cores 17%  11,671.58 

Legal  and  Professional  Service 300.00 

Discounts  Paid 26.67 

Discounts  allowed  on  Sales 8,952.00 

Association  and  Club  Dues 760.00 

Donations  130.00 

Office  Stationery  and  Supplies.  __  . 3,107.65 

Sundry  Office  Expense 967.50 

Postage,  Telephone  and  Telegraph.  376.00 

Walfare  Expense 500.00 

Miscellaneous  TraveUng  Expense...  261.13 

Sundry  Administrative  Expense 123.65 

Sales  Salaries 4,000.00 

Sales  Commissions 8,819.49 

Sundry  Sales  Expense 4,567.24 

Advertising.. 2,150.00 

Plywood 36%  24,716.30 

100% 

$68,656.38 

$68,656.38 

The  foregoing  accounts  cover  all  Expenses  and  it  will  be  noted  that  the 
grouping  of  the  various  items  and  their  redistribution  has  progressed  toward 
the  point  where  they  may  be  distributed  to  the  several  products,  and  the  Ex- 
pense accounts  v/ith  these  products  will  now  be  shown,  the  entries  on  the  debit 
side  having  been  collected  from  the  accounts  just  reviewed.  The  "Inven- 
tory” entries  cover  the  amounts  of  Expense  represented  in  work  in  process  and 
in  finished  goods  in  stock  at  the  beginning  and  end  of  the  period. 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


Accounting 
Revised  1922 


EXPENSE 


69 


Dr.  ROTARY  VENEER,  EXPENSE  Cr. 


Inventory 

.$  425.60 

Summary  Account  Rotary  Veneer.. 

.$34,132.28 

Equipment  Expense 

. 3,457.05 

Rent 

. 2,850.13 

Steam  Generation 

. 4,980.81 

Power  and  Light. 

. 1,659.63 

General  Mfg.  Expense 

. 5,274.19 

Inventory 

306.10 

Administrative  and  Sales  Expense. 

. 15,790.97 

$34,438.38 

$34,438.38 

Dr. 


SLICED  VENEER,  EXPENSE 


Cr. 


Inventory $ 376.42 

Rent 4,071.61 

Equipment  Expense 1,626.84 

Steam  Generation 2,153.86 

Power 765.98 

General  Mfg.  Expense 3,210.38 


Administrative  and  Sales  Expense..  9,611.89 

$21,816.98 


Summary  Account  Sliced  Veneer....$21, 552.76 


Inventory 264.22 

$21,816.98 


Dr. 


SAWN  VENEER,  EXPENSE 


Cr. 


Inventory $ 822.42 

Rent 1,832.22 

Equipment  Expense 1,016.78 

Steam  Generation 942.32 

Power 1,212.81 

General  Mfg.  Expense... 1,834.50 


Administrative  and  Sales  Expense..  5,492.51 


Summary  Account  Sawn  Veneer $13,054.80 


Inventory 98.76 


$13,153.56 


$13,153.56 


Dr. 

LUMBER, 

EXPENSE 

Cr. 

Inventory 

Rent 

Equipment  Expense 

$ 76.24 

203.58 
610.07 

Summary  Account  Lumber 

$ 2,978.44 

Power 

General  Mfg.  Expense 

Administrative  and  Sales  Expense 

319.16 
458.63 
. 1,373.13 

Inventory 

62.37 

$ 3,040.81 

$ 3,040.81 

Dr. 


LUMBER  CORES,  EXPENSE 


Cr. 


Inventory $ 72.22 

Rent 2,035.80 

Equipment  Expense 2,846.98 

Steam  Generation 4,038.49 

Power 1,148.97 

General  Mfg.  Expense 3,898.32 


Administrative  and  Sales  Expense..  11,671.58 


Summary  Account  Lumber  Cores...$25,647.45 


Inventory 64.91 


$25,712.36 


$25,712.36 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


70 


EXPENSE 


Accouktino 
• Revised  1922 


Dr. 

PLYWOOD 

EXPENSE 

Cr. 

Inventory 

.*  723.76 

Summary  Account  Plywood 

$45,926.44 

Rent 

5,496.67 

Equipment  Expense 

3,863.76 

Power  and  Light 

1,276.64 

General  Mfg.  Expense 

8,255.26 

Department  Supplies  (Sandpaper). 

2,238.00 

Administrative  and  Sales  Expense 

. 24,716.30 

Inyentory 

643.95 

$46,570.39 

$46,570.39 

This  completes  the  collection  and  distribution  of  all  the  Expense  items.  It 
will  be  seen  that  the  figures  given  in  the  Expense  Analysis  on  pages  27  to  42  have 
been  used  for  the  purpose  of  illustrative  comparison,  and  that  the  entries  cover 
the  transactions  for  a period  of  twelve  months.  Whatever  is  the  period  of 
distribution  used,  the  same  principle  should  be  followed  with  whatever  charges 
have  been  made  during  the  interval  since  the  last  distribution,  including  propor- 
tionate amounts  of  contingent,  reserve  and  annual  charges  such  as  those  for 
insurance,  depreciation,  taxes  and  interest  on  investment. 

MATERIAL 

We  now  come  to  the  subject  of  Material  accounting.  In  this  industry, 
materials  ordinarily  fall  under  three  heads  as  noted  on  page  43,  viz.;  Veneers, 
Lumber  Cores  and  Plywood.  That  the  proper  distribution  of  material  costs 
to  the  various  products  be  made,  it  is  recommended  that  the  material  accounts 
correspond  to  the  divisions  of  product.  Where  distinct  classes  of  these  main 
groupings  are  made  or  other  lines  are  manufactured,  corresponding  material 
accounts  should  exist.  Referring  again  to  the  example  used  in  Expense  Analysis, 
we  would  have  accounts  with  Rotary  Veneer,  Sliced  Veneer,  Sawn  Veneer,  Lum- 
ber, Lumber  Cores  and  Plywood.  There  are  also  cases  where  the  same  kind  of 
raw  material  is  used  for  two  or  more  products,  and  under  such  conditions  it  is 
most  practical  to  carry  a separate  account  vv'ith  this  item,  making  the  necessary 
distribution  to  the  others.  Logs  are  cited  as  an  illustration,  they  being  used  in 
the  manufacture  of  Rotary  Veneer,  Sliced  Veneer,  Sawn  Veneer  and  Lumber.  If, 
however,  certain  kinds  of  logs  are  used  exclusively  for  certain  products,  no 
division  of  their  cost  is  necessary  and  so  no  separate  account  is  required.  For 
example:  oak  may  be  purchased  and  used  exclusively  in  the  manufacture  of 
quarter-sawn  veneers;  gum  may  be  used  only  in  rotary-cut  cross-banding,  and 
chestnut  in  lumber.  It  might  be,  however,  that  walnut  logs  are  used  both  in 
lumber  and  in  sliced  veneers,  and  if  the  raw  material  for  both  products  comes 
from  the  same  lot  a division  must  be  made. 

Following  the  outline  of  our  original  example,  we  would  have  the  following 
material  accounts.  The  “Inventory”  entries  cover  material  stocks,  and  mater- 
ials in  work-in-process  and  in  finished  goods  on  hand  at  the  beginning  and  end 
of  the  period. 


Dr. 

LOGS 

Cr. 

Inyentory 

Purchases 

Inyentory  Adjustment 

$15,421.60 

88,684.25 

3,427.60 

Rotary  Veneer 

Shced  Veneer 

Sawn  Veneer.-  

Lumber 

Inyentory 

$47,864.55 

33,762.80 

10,372.60 

4,276.50 

11,257.00 

$107,533.45 

$107,533.45 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


Accounting 
Revised  1922 


MATERIAL 


71 


Dr. 

ROTARY  VENEER,  MATERIAL 

Cr. 

Inventory 

$ 416.25 

Summary  Account  Rotary  Veneer. .$47,640.00 

Logs.- 

47,864.55 

Inventory  Adjustment 

27.55 

Inventory 

613.25 

$48,280.80 

$48,280.80 

Dr. 

SLICED  VENE 

ER,  MATERIAL 

Cr. 

Inventory 

$ 215.45 

Summary  Account  Sliced  Veneer.. 

....$34,197.35 

Logs.- 

33,762.80 

Inventory 

143.65 

Inventory  Adjustment 

362.75 

$34,341.00 

$34,341.00 

Dr. 

SAWN  VENl 

EER,  MATERIAL 

Cr. 

Inventory 

$ 628.95 

Summary  Account  Sawn  Veneer.. 

...$10,770.30 

Logs  

10,372.60 

Inventory 

496.25 

Inventory  Adjustment 

265.00 

X 

$11,266.55 

$11,266.55 

Dr. 

LUMBER,  T 

MATERIAL 

Cr. 

Inventory 

$ 135.50 

Summary  Account  Lumber 

...$  4,638.25 

Logs— 

4,276.50 

Inventory 

98.75 

Inventory  Adjustment 

325.00 

$ 4,737.00 

$4,737.00 

Dr. 

LUMBER  CORES 

!,  MATERIAL 

Cr. 

Inventory 

$ 672.34 

Summary  Account  Lumber  Cores 

...$64,781.17 

Lumber 

60,254.70 

Glue.- 

3,752.25 

Inventory  Adjustment 

640.15 

Inventory 

538.27 

$65,319.44 

$65,319.44 

Dr. 

PLYWOOD, 

MATERIAL 

Cr. 

Inventory 

$ 2,176.50 

Inventory  Adjustment 

$ 222.45 

Veneers 

60,120.05 

Inventory  Adjustment 

176.50 

Lumber  Cores 

33,271.50 

Summary  Account  Plywood 

$126,509.00 

Glue. 

25,752.40 

Tape 

2,204.45 

Paper  Cauls 

126.50 

Packing  Materials 

4,722.75 

Inventory  Adjustment 

325.50 

Inventorv  Adiustment 

57.65 

Inventorv 

1 .849  S.fJ 

$128,757.30 

$128,757.30 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


72 


LABOR 


Accounting 
• Revised  1922 


LABOR 

The  factor  of  Labor  costs  may  be  taken  care  of  in  the  books  by  charging  the 
respective  costing  department  Summary  Accounts  with  the  amounts  shown  by 
the  payroll  to  be  chargeable  to  these  departments.  To  facilitate  this,  the 
Labor  payroll  should  be  divided  into  one  group  for  General  Indirect  Labor  and 
one  group  each  for  the  respective  costing  departments.  The  proportion  of 
General  Indirect  Labor  assignable  to  each  costing  department  may  be  carried 
forward  and  added  to  the  Departmental  Labor  in  each  case  to  show  a total  for 
all  Labor  for  each  department.  The  following  illustration  is  given,  no  attempt 
being  made  to  incorporate  irrelevent  details. 


LABOR  PAYROLL 
General  Indirect  Labor 


Name 

HOURS  DAILY  Total 

Rate 

Amount 

Watchman 

12 

12 

12  12  12 

12  12 

84 

$35.00 

Millwright 

8 

8 

10  10  10 

12 

58 

60.00 

Engineer 

10 

8 

8 8 10 

12 

56 

60.00 

Fireman 

10 

10 

10  10  10 

10 

60 

.40 

24.00 

Fireman.  

10 

10 

10  10  10 

10 

60 

.40 

24.00 

Fireman.  _ 

10 

10 

10  10  10 

10 

60 

.40 

24.00 

Fireman 

10 

10 

10  10  10 

10 

60 

.40 

24.00 

Trucker 

8 

8 

8 8 8 

8 

48 

.30 

14.40 

Trucker 

0 

8 

8 8 8 

4 

36 

.30 

10.80 

Totals  (See  below) 

522 

$276.20 

Distribution  to  Departments 

To  Rotary  Veneer 

31% 

162 

$85.62 

To  SUced  Veneer 

14% 

73 

38.67 

To  Sawn  Veneer 

8% 

42 

22.10 

To  Lumber 

1% 

5 

2.76 

To  Lumber  Cores 

26% 

136 

71.81 

To  Plywood 

20% 

104 

55.24 

Totals.  

100% 

522 

$276.20 

Departmental  Labor 

Rotary  Veneer 

Foreman 

8 

8 

8 8 8 

8 

48 

$60.00 

Foreman 

8 

8 

8 8 8 

8 

48 

48.00 

Operative 

8 

8 

8 8 8 

8 

48 

.50 

24.00 

* ♦ ♦ ♦ 

* * * 

* 

Laborer 

8 

8 

8 8 8 

8 

48 

.35 

16.80 

General  Indirect  Labor  (See  above).- 

162 

85.62 

Totals 

1639 

$ 525.40 

Sliced  Veneer 

Foreman 

8 

8 

8 8 8 

8 

48 

$60.00 

Operative 

8 

8 

8 8 8 

8 

48 

.60 

28.80 

Operative 

8 

8 

8 8 8 

8 

48 

.40 

19.20 

* * * * 

* ♦ * 

♦ 

Laborer 

8 

8 

8 8 8 

8 

48 

.30 

14.40 

General  Indirect  Labor  (See  above).. 

73 

38.67 

Totals 

956 

337.47 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


V, 


Accounting 
Revised  1922 


LABOR 


73 


LABOR  PAYROLL— Continued 
Departmental  Labor— Continued 

Sawn  Veneer 


Name 

HOURS  DAILY 

Total 

Rate 

Amount 

Foreman 

. 8 

8 

8 8 

8 

8 

48 

$55.00 

Operative 

. 8 

8 

,8  8 

8 

8 

48 

.55 

26.40 

Operative 

. 8 

8 

8 8 

8 

8 

48 

.40 

19.20 

* ♦ * 

♦ 

* ♦ 

Laborer 

. 0 

8 

8 8 

8 

0 

32 

.30 

9.60 

General  Indirect  Labor  (See  above).-. 

42 

22.10 

Totals 

570 

$193.80 

Lumber 

Operative 

8 

8 

8 8 

8 

8 

48 

.50 

$24 . 00 

Laborer 

. 8 

8 

8 8 

8 

8 

48 

.30 

14.40 

General  Indirect  Labor  (See  above)... 

5 

2.76 

Totals 

101 

41.16 

Lumber  Cores 

Foreman 

8 

8 

8 8 

8 

8 

48 

$50.00 

Operative 

8 

8 

8 8 

8 

8 

48 

.50 

24.00 

Operative 

8 

8 

8 8 

8 

8 

48 

.40 

19.20 

« « « 

* 

♦ ♦ 

* * 

Laborer 

0 

8 

8 8 

8 

8 

40 

.35 

14.00 

General  Indirect  Labor  (See  above).—. 

136 

71.81 

Totals 

1207 

422.45 

Plywood 

Foreman 

8 

8 

8 8 

8 

8 

48 

$60.00 

Foreman 

8 

8 

8 8 

8 

8 

48 

55.00 

Operative 

8 

8 

8 8 

8 

8 

48 

.60 

28.80 

♦ * * 

♦ 

* ♦ 

* ♦ 

Laborer 

8 

8 

8 8 

8 

0 

40 

.35 

14.00 

General  Indirect  Labor 

ISee  abovel. 

104 

55.24 

Totals 

2540 

843.28 

Grand  Totals 

7013 

$2,363.56 

The  ledger  account  with  Labor*  would  then  appear  as  follows,  the  “Inven- 
tory” entries  covering  labor  represented  by  work-in-process  and  in  finished  goods 
on  hand  at  the  beginning  and  end  of  the  period : 


Dr. 


LABOR 


Cr. 


Inventory. 


2,690.27 


Payrolls 


118,090.40 


Rotary  Veneer. 
Sliced  Veneer... 
Sawn  Veneer.... 

Lumber 

Lumber  Cores. 

Plywood 

Inventory 


.$26,270.00 
. 16,873.50 
. 9,690.00 
. 2,058.00 
. 21,122.50 
. 42,164.40 
. 2,602.27 


$120,780.67 


$120,780.67 


• It  is  recommended  that  separate  Labor  accounts  be  kept  with  each  costing  department. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


74 


SUMMARY 


VAccountino 
• Revised  1922 


SUMMARY 

We  have  taken  all  of  the  items  of  cost,  have  classified  them  and  grouped 
them  into  their  proper  accounts,  whether  of  Expense,  Materials  or  Labor,  and 
have  divided  each  of  these  factors  in  turn  according  to  the  proper  proportions 
chargeable  to  each  class  of  product.  It  now  remains  to  collect  the  three  factors 
of  cost  of  each  product  as  follows,  the  “Inventory”  entries  covering  material 
stocks,  and  Material,  Labor  and  Expense  in  goods  in  process  and  in  finished 
goods  on  hand  at  the  beginning  and  end  of  the  period: 


Dr. ROTARY  VENEER,  Summary  Account Cr. 


Expense 

$34,132.38 

Sales $132,835.20 

Material 

47,640.00 

Labor 

26,270.00 

Profit  and  Loss 

24,792.92 

$132,835.20 

$132,835.20 

Dr. 

SLICED  VENEER, 

Summary  Account 

Cr. 

Expense  

$21,552.76 

Sales 

$88,711.17 

Material 

Labor 

Profit  and  Loss 

34,197.35 

16,873.50 

16,087.56 

$88,711.17 

$88,711.17 

Dr.  SAWN  VENEER,  Summary  Account  Cr. 


Expense $13,054.80 

Sales $40,575.14 

Material 10,770.30 

Labor 9,690.00 

Profit  and  Loss 7,060.04 

$40,575.14 

$40,575.14 

Dr. 

LUMBER,  Summary  Account 

Cr. 

Expense  

$ 2,978.44 

Sales. L 

$11,496.37 

Material 

Labor— 

Profit  and  Loss 

4,638.25 

2,058.00 

1,821.68 

$11,496.37 

$11,496.37 

STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


PLYWOOD  COST  BALANCE  RECORD 


EXPENSE 

LABOR 

MATERIAL 

COST 

SALES 

PROFIT 

ACTUAL 

STANDARD 

BALANCE 

ACTUAL 

STANDARD 

BALANCE 

ACTUAL 

STANDARD 

BALANCE 

ACTUAL 

STANDARD 

BALANCE 

Delivered,  January 

$ 3,862.70 

$ 3,807.60 

$ 66.10 

$ 3,513.70 

$ 3,501.72 

$ 11.98 

$ 10,541.10 

$ 10,550.75 

$9.65 

$ 17,917.50 

$ 17,860.07 

67.43 

$ 19,680.. 50 

$ 1,763.00 

Totals  to  date 

3,862.70 

3,807.60 

66.10 

3,513.70 

3,501.72 

11.98 

10,541 . 10 

10,550.75 

9.65 

17,917.50 

17,860 . 07 

67.43 

19,680.50 

1,763.00 

Delivered,  February 

3,785.60 

3,752.55 

33.06 

3,342.50 

3,350.27 

7.77 

10,027.50 

10,102.50 

75,00 

17,155.60 

17,205.32 

49.72 

19,080.90 

1,925.30 

Totals  to  date 

7,648.30 

7,560.15 

88.16 

6,856.20 

6,851.99 

14.21 

20,568.60 

20,653.25 

84.65 

35,073.10 

35,065.39 

7.71 

38,761.40 

3,688.30 

Delivered,  March 

3,787.40 

3,732.35 

66.06 

3,176.42 

3,180.25 

3.83 

9,529.26 

9,605.27 

76.01 

16,493.08 

16,517.87 

24 . 79 

18,042.70 

1,549.62 

Totals  to  date 

11,435.70 

11,292.50 

H3.20 

10,032.62 

10,032.24 

0.38 

30,097.86 

30,258.52 

160.66 

51,566.18 

51,583.26 

17.08 

56,804.10 

5,237.92 

Delivered,  April 

Inventory  Adjustment 

3,382.55 

3,362.60 

19.96 

3,243.54 

3,240.66 

2.88 

9,730.62 

222.45 

9,735.65 

5.03 

222.46 

16,356.71  \ 
222.45  / 

16,338.91 

240.26 

18,205.05 

1,625.89 

Totals  to  date 

14,818.25 

14,655.10 

163.16 

13,276.16 

13,272.90 

3.26 

40,050.93 

39,994.17 

66.76 

68,145.34 

67,922.17 

223.17 

75,009.15 

6,863.81 

Delivered,  May 

3,272.40 

3,260.25 

12.16 

3,250.60 

3,178.27 

72.33 

9,751.80 

9,757.60 

5.80 

16,274.80 

16,196.12 

78.68 

18,170.30 

1,895.50 

Totals  to  date 

18,090.65 

17,915.35 

176.30 

16,526.76 

16,451.17 

76.69 

49,802.73 

49,751.77 

60.96 

84,420.14 

84,118.29 

SOI . 86 

93,179.45 

8,759.31 

Delivered,  June 

Inventory  Adjustment 

3,262.40 

3,250.25 

12.16 

3,125.72 

3,122.29 

3.43 

9,377.16 

326.60 

9,382.17 

5.01 

325.50 

15,765.28  \ 
326.60  1 

15,754.71 

314.93 

17,652.00 

2,212.22 

Totals  to  date 

21,353.05 

21,165.60 

187.46 

19,652.48 

19,573.46 

79.00 

58,854.39 

59,133.94 

279.55 

99,859.92 

99,873.00 

13.08 

110,831.45 

10,971 . 53 

Delivered,  July 

3,310.15 

3,325.20 

15.05 

3,270.56 

3,276.90 

6.34 

9,811.68 

9,827.35 

15.67 

16,392.39 

16,429.45 

37 . 06 

18,335.75 

1,943.36 

Totals  to  date 

24,663.20 

24,490.80 

172.40 

22,923.04 

22,850.36 

72.68 

68,666.07 

68,961.29 

295.22 

116,252,31 

116,302.45 

50.14 

129,167.20 

12,914.89 

Delivered,  August 

3,527.20 

3,516.25 

10.96 

3,340.76 

3,351.63 

10.87 

10,022.28 

10,116.35 

94.07 

16,890.24 

16,984.23 

93.99 

18,900.25 

2,010.01 

Totals  to  date 

28,190.40 

28,007.05 

183.36 

26,263.80 

26,201 . 99 

61.80 

18,688.35 

79,077.64 

389.29 

133,142.55 

133,286.68 

144.13 

148,067.45 

14,924.90 

Delivered,  September 

Inventory  Adjustment 

3,527.60 

3,562.60 

35  00 

3,460.72 

3,452.90 

7.82 

10,382 . 16 
176.50 

10,398.23 

16.07 

176.60 

17,370.48  \ 
176.50  / 

17,413.73 

133.26 

19,425.60 

1,878.62 

Totals  to  date 

31,718.00 

31,569.65 

148.36 

29,724.52 

29,654.89 

69.63 

89,247.01 

89,475.87 

228.86 

150,689.53 

150,700.41 

10.88 

167,493.05 

16,803.52 

Delivered,  October 

4,070.60 

4,091.70 

21.10 

3,725.40 

3,716.63 

8.77 

11,176.20 

11,207,60 

31  40 

18,972.20 

19,015.93 

43.73 

21,092.65 

2,120.45 

Totals  to  date 

35,788.60 

35,661.35 

127.26 

33,449.92 

33,371.52 

78.40 

100,423.21 

100,683.47 

260.26 

169,661 .73 

169,716.34 

54.61 

188,585.70 

18,923.97 

Delivered,  November.. 

4,186.25 

4,198.20 

11.95 

4,272.28 

4,270.92 

1.36 

12,816.84 

12,872.28 

55 . 44 

21,275.37 

21,341  40 

66.03 

23,870.65 

2,036.30 

Totals  to  date 

39,974.85 

39,859.55 

116.30 

37,722.20 

37,642.44 

79.76 

113,240.05 

113,555.75 

315.70 

190,937.10 

191,057.74 

120.64 

212,456.35 

21,519.25 

Delivered,  December 

Inventory  Adjustment 

5,951.59 

6,375.74 

424.15 

4,442.20 

4,422.16 

20.04 

13,326.60 

67.66 

13,412.96 

86.36 

57.65 

23,720.391 
67.66  J 

24,210.86 

518.12 

24,832.55 

1,169.81 

Totals  for  Year 

$45,926.44 

$46,235.29 

$308.85 

$42,164.40 

$42,064.60 

%99.80 

$126,509.00 

$126,968.71 

$ 459.71 

8214,599.84 

$215,268  eO 

t $668. 76 

$237,288.90 

1 ■ ® 

§ $22,689.06 

t Profit  on  Costing.  §Total  Net  Profit.  Italics  indicate  deductions  which  would  appear  in  Red. 


Accounting 
• Revised  1922 


CHECKING  COSTS 


75 


Dr. 

LUMBER  CORES, 

Summary  Account 

Cr. 

Expense 

$25,647.45 

Sales 

113,732.34 

Material 

Labor 

Profit  and  Loss 

64;781.17 

21,122.50 

2,181.22 

$113,732.34 

$113,732.34 

Dr.  PLYWOOD,  Summary  Account  Cr. 

♦Sales $237,288.90 


$237,288.90 


^ See  Cost  Balance  Record. 


*Expense $45, 926.44 

♦Material 126,509.00 

♦Labor 42,164.40 

♦Total  Cost 214,599.84 

♦Profit  and  Loss 22,689.06 

$237,288.90 


CHECKING  COSTS 

These  entries  complete  the  records  in  the  general  accounts  as  far  as  the 
requirements  of  costing  are  concerned,  and  furnish  the  totals  of  actual  expen- 
ditures for  Expense,  Materials  and  Labor  for  each  costing  department.  It  now 
remains  to  compare  these  actual  expenditures  with  the  corresponding  totals  on 
the  cost  records. 

The  accompanying  “Cost  Balance  Record”  is  that  used  in  connection  with 
Engineering  Costs,  but  a similar  form  may  be  used  with  any  cost  system  which 
furnishes  records  of  actual  and  charged  costs  of  Expense,  Materials  and  Labor 
by  departments.  A separate  sheet  is  used  for  each  class  of  product,  the  one 
given  in  the  example  showing  the  record  for  Plywood.  If  desired  “Manu- 
facturing Expense”  and  “Administrative  and  Sales  Expense”  may  be  kept 
separate  instead  of  being  combined  under  the  general  head  of  “Expense”  as 
shown  on  this  sample  sheet. 

Under  the  columns  headed  “Actual,”  appear  the  figures  taken  from  the 
books,  and  under  “Standard,”  those  from  the  cost  records.  The  variations 
between  actual,  and  figured  costs  appear  in  the  “Balance”  column.  The  foot- 
ing of  the  balance  column  under  “Total  Cost”  gives  the  total  net  difference 
which  is  the  profit  or  loss  (as  the  case  may  be)  on  costing.  The  total  net  profit 
or  loss  is  shown  in  the  last  column,  which  gives  the  difference  between  selling 
price  and  actual  cost. 

The  “Inventory  Adjustments”  noted  on  this  balance  sheet  and  in  the 
ledger  accounts  are  those  occasioned  by  the  necessity  of  bringing  inventory 
values  up  to  date,  and  may  be  owing  to  discrepancies  in  quanities  revealed  by 
actual  inventories  of  stock  or  fluctuations  in  market  values. 


STANDARD  COSTING  PRINCIPLES 
PLYWOOD  MANUFACTURERS  ASSOCIATION 


